Markets between Hormuz, inflation and rates: when geopolitics returns to dictate prices

A weekend where the risk did not go away

The start of the week for financial markets began with a clear feeling: geopolitics is no longer just a backdrop, but a variable that directly impacts the prices of oil, bonds, currencies, and stocks. Between Friday and the weekend, the most sensitive point came from the Persian Gulf: according to a CIA assessment reported by Reuters, Iran could withstand a US naval blockade for about four months before experiencing truly severe economic pressure. This detail is important for the markets, as it reduces the likelihood of Tehran's rapid capitulation and increases the risk of a protracted crisis in the Strait of Hormuz.

On the diplomatic front, Iran sent a response to the American proposal through Pakistan, but Trump rejected it as "totally unacceptable." The crux of the matter remains the same: Tehran demands an end to the war, the lifting of the blockade, and the release of frozen assets; Washington wants much tougher guarantees on its nuclear program, including reducing enrichment to 0% and transferring the stockpile of uranium enriched to 60% , estimated at around 440 kg .

Iran, Ukraine, and the New Political Risk Map

The week was further complicated by the message from Moscow. Putin declared that, in his opinion, the war in Ukraine "is coming to an end" and expressed his willingness to engage in direct talks only after the terms of an agreement have been finalized. He also opened the door to discussing new security arrangements with Europe, but several analysts urged caution: this isn't yet peace, but rather a political signal that the market interprets as a potential reduction in some of the European risk.

The problem is that, while there's at least a glimpse of a negotiated narrative on the Ukrainian issue, on the Iranian front the situation seems to be moving in the opposite direction. On Tuesday, Tehran threatened to increase uranium enrichment to 90% , a level considered weapons-grade, if the United States were to resume its attacks. At the same time, according to Euronews, Trump reportedly discussed the possibility of new strikes with his national security team. For the market, this means one thing: the energy risk premium cannot yet be removed from prices.

China and the United States: Inflation rises again from two different directions

The second major theme of the beginning of the week was the return of inflation. In China, producer prices rose 2.8% annually in April, well above the 1.6% expected by the Reuters consensus, while the CPI rose 1.2% . This is an important figure because it comes after a long period of industrial deflationary pressures and reflects a China that isn't necessarily recovering in consumption, but is importing inflation through energy, metals, and raw materials.

In the United States, the April CPI data confirmed the problem: monthly inflation was up 0.6% , annual inflation was 3.8% , core CPI was 2.8% , and the energy component rose 17.9% year-over-year. Gasoline, in particular, rose 28.4% in twelve months. This is where the market has changed its tune: it's no longer just about high oil prices, but about the risk that high oil prices will impact consumer prices, real wages, corporate margins, and thus the Fed's decisions.

Stock Markets: Wall Street corrects, Europe becomes more fragile

The stock market's reaction was selective. Wall Street didn't collapse, but it showed a defensive rotation after the recent highs. On Tuesday, the S&P 500 closed down 0.16% , the Nasdaq down 0.71% , while the Dow Jones managed to gain 0.11% . The most interesting sign came from semiconductors: the PHLX Semiconductor index lost about 3% , following a period of strong euphoria linked to artificial intelligence.

In Europe, the picture was more challenging. The STOXX 600 closed down 1.01% on Tuesday, weighed down by the mix of oil, interest rates, and geopolitical uncertainty. This is the kind of session where the market isn't selling off all markets equally: technology, discretionary consumer goods, and interest rate-sensitive sectors are suffering, while energy and defensive stocks are holding up better. But the message is clear: with inflation rising and central banks less free to cut rates, high valuations are becoming harder to justify.

Oil, rates and currencies: the real focus of the week

The focus of the week, rather than stocks, was on rates and commodities. Brent closed Tuesday at $107.77 a barrel, up 3.42% , while WTI rose 4.19% to $102.18 . Oil isn't just pricing in supply and demand, but also the possibility that Hormuz will remain a global chokepoint for weeks or months to come.

Bonds reacted accordingly. The 10-year U.S. Treasury rose to 4.461% , the 30-year to 5.025% , while the yield on the 10-year German Bund rose above 3.10% , close to its highest level since 2011. This is perhaps the most important signal for portfolios: the bond market is no longer looking solely at growth, but above all at the risk that energy inflation will force the Fed and the ECB to remain restrictive for longer.

On the currency front, the dollar strengthened again: the dollar index rose 0.35% to 98.31 , while the euro fell to $ 1.1737 . Gold, while remaining at very high levels, lost ground: the spot price fell to around $4,713 an ounce, as higher interest rates reduce the attractiveness of an asset that pays no coupon.

Conclusion: the market is not afraid, but demands higher returns

The message this week is that markets aren't yet pricing in an immediate recession or systemic shock, but are demanding a higher premium for holding risk. Stocks near their highs, oil above $100 , 30-year Treasuries above 5% , and Bunds above 3% suggest a more fragile equilibrium: as long as geopolitics remains open and inflation rises again, any stock rally will have to coexist with a much less forgiving bond market.