Financial markets are grappling with a renewed sense of unease as reports that the month-old Iran ceasefire is now on "life support", according to U.S. President Donald Trump, push oil prices higher and complicate investors' ability to look past geopolitical risk.
Brent crude has climbed back to roughly $107 per barrel, some $10 above last week pparent lows, and year-end futures have moved back above $90 per barrel. The energy-driven move is feeding through into wider markets, contributing to a pullback in global equities after Wall Street recorded fresh highs yesterday.
Even once-robust Asian technology benchmarks showed signs of strain. The tech-heavy KOSPI index in South Korea recoiled, with part of the weakness attributed to domestic concerns over proposed windfall taxes on AI-related profits.
Elevated oil prices add to uncertainty as investors await the April U.S. consumer price report later in the day. Consensus forecasts point to an acceleration in the headline CPI to 3.7% year-on-year, a near three-year high and an increase from March t 3.3%.
Market participants will watch closely because the inflation picture has direct implications for the path of interest rates and Treasury demand. Large auctions of 10-year and 30-year U.S. Treasury debt are scheduled for later today and during the week, leaving fixed income markets especially sensitive to incoming data and shifting risk appetites.
Political uncertainty weighs on gilts and sterling
Developments in the United Kingdom further rattled fixed income markets. Prime Minister Keir Starmer publicly asserted he would remain in office despite his party's poor performance in recent local elections, yet reports that senior cabinet members have urged him to outline a timetable for his departure intensified concern about the policy outlook.
The resulting ambiguity about future fiscal and economic direction pushed long-dated British gilt yields up to levels not seen since 1998, while sterling slipped against major currencies.
Currency and central bank signals
The dollar traded generally firmer while the yen eased, even as U.S. Treasury Secretary Scott Bessent, visiting Tokyo, appeared to support the Bank of Japanfforts to normalize policy and stabilize the currency. On the yen, Bessent said: "excess volatility is undesirable, and we have been in close contact with the Ministry of Finance, and we will stay in close contact with them."
Meanwhile, the U.S. Fed transition moved forward: Kevin Warsh, seen as the leading candidate to take the Fed chair role, cleared a key procedural hurdle in the U.S. Senate on Monday. That step brings him closer to confirmation and a planned handoff from outgoing Chair Jerome Powell, whose term ends on Friday.
Chart of the day
Analysts expect U.S. consumer prices to have accelerated for a second consecutive month in April. A projected 3.7% year-on-year rise would mark the largest annual increase in more than two and a half years, up from March t 3.3%.
Energy-related components, particularly gasoline, are likely to have accounted for most of April's increase, after a record surge in March. That pattern would help explain the sensitivity of bond yields and real-money flows to the recent jump in oil prices.
Events to watch
- U.S. April CPI release - 8:30 a.m. EDT
- U.S. 10-year note auction - 1 p.m. EDT
- Speeches by New York Fed President John Williams and Chicago Fed President Austan Goolsbee
The intersection of geopolitics, energy markets and domestic economic data has left investors reassessing risk across asset classes. Oil's rebound, the prospect of hotter inflation figures and political uncertainty in the U.K. are all conspiring to keep both equity and bond markets on edge as the week progresses.
Opinions expressed are those of the author.