Oil, rates, and luxury goods: markets are pricing in geopolitical risk again.

Between October 10 and 13, risk reignited in the Middle East, while in Europe, high energy prices and the weak euro exacerbated an already fragile situation. In the United States, however, the market simultaneously absorbed very high bond yields and more uncertain signals about the sustainability of equity valuations.

The Middle East brings the geopolitical premium back to oil

The turning point came with the attack attributed to the Houthis on Riyadh airport, which left at least 12 dead and over 300 injured . Saudi Arabia's direct involvement immediately reopened the issue of the security of the region's energy infrastructure and key trade routes.

The reaction in oil was swift. Brent rose to around $106.50 a barrel , up nearly 1.7% , while WTI reached $93.60 , up about 1.9% .

The market is therefore pricing in not only global demand or OPEC decisions, but also a growing geopolitical premium. Should tensions spread to Saudi infrastructure or shipping routes, the risk of new supply shocks would immediately return to the forefront of inflation expectations.

Russia and Ukraine: a still fragile energy truce

On the European front, Donald Trump announced a truce between Russia and Ukraine over attacks on energy infrastructure over the weekend. The news initially fueled hopes of a reduction in the risk to gas, oil, and refined product supplies.

The optimism, however, was short-lived. Kyiv accused Moscow of hitting at least six energy infrastructure projects in the hours that followed, casting doubt on the agreement's soundness.

In parallel, Washington has supported a plan to bring back to market an initial tranche of more than 300,000 tons of Russian diesel, with the aim of increasing the supply of refined products and reducing pressure on fuel prices.

The result is an energy market increasingly divided between two opposing forces: on the one hand, the political attempt to increase supply, on the other, a geopolitical risk that remains high and difficult to contain.

Gold weak despite uncertainty

In such an unstable environment, one might have expected a new rush toward precious metals. Instead, the opposite occurred.

Gold fell about 0.6% to around $4,169 an ounce , while silver, platinum and palladium also showed weakness.

The main explanation lies in interest rates and the dollar. With US yields still at extremely high levels, the opportunity cost of holding zero-coupon assets like gold is rising. At the same time, a stronger US currency makes dollar-denominated commodities relatively more expensive for international investors.

Industrial metals also suffered from the worsening cyclical sentiment: copper lost around 0.6% , while aluminium, nickel and tin closed lower.

Stocks: Europe More Resilient, Wall Street Held Back by Interest Rates

On the stock market, performance was very mixed.

The STOXX Europe 600 gained around 0.7% , driven mainly by the banking sector, which rose around 1.5% . The financial sector continues to benefit from an environment of high nominal interest rates, at least until the economic slowdown translates into a significant deterioration in credit quality.

In the United States, however, the situation was more fragile. The S&P 500 lost about 0.2% , while the Nasdaq dropped about 0.5% in the first session of the week, penalized primarily by the pressure on bond yields and the resulting compression of growth stock multiples.

The market therefore continues to show strong sensitivity to rates: any upward movement in Treasuries immediately leads to a revision in valuations, especially in the most expensive sectors.

Strong dollar, euro under pressure

On the currency market, the main protagonist was once again the dollar.

The dollar index reached around 102.6 , a high in about 18 months, while the euro fell to $1.115 , a low in about 17 months.

The European currency's weakness reflects an unfavorable combination: modest economic growth, rising energy costs, and increased perceptions of fiscal risk in some eurozone countries. By contrast, the United States continues to benefit from higher bond yields and greater economic resilience.

However, the strengthening of the dollar also represents a further restrictive factor for global markets, especially for emerging economies and for European companies most exposed to raw material costs.

European luxury still in trouble

Europe's difficulties also emerged in the corporate sector. LVMH reported a decline of approximately 5% in sales from its fashion and leather goods division, rekindling concerns about weak Chinese demand.

The European luxury sector has already lost over €330 billion in capitalization since the beginning of the year, one of the clearest signs of Asian consumers' declining propensity to spend.

This is a significant problem for Europe: luxury, industrial, and manufacturing represent a significant part of the composition of continental indices, and their weakness limits the ability of European stock markets to fully follow American performance.

A market that is once again more fragile

The picture that has emerged in recent days is therefore that of a market that is once again pricing in multiple sources of risk simultaneously.

Oil above $100 brings energy inflation back into focus, high yields limit equity valuation expansion, and a strong dollar increases pressure on the global economy.

In this context, the resilience of the indices should not be interpreted as a lack of risk. On the contrary, the gap between still relatively strong equity markets and increasingly restrictive financial conditions makes the next balance particularly delicate.