The opening quarter of the year subjected investors to extreme market swings driven by an array of geopolitical shocks, culminating in a severe energy shock after the outbreak of war in Iran. That conflict helped push Brent crude futures up almost 90% - the largest Q1 rise on record and the second-biggest quarterly increase ever - and coincided with near-record losses elsewhere in global markets.
Across markets, the combination of surging energy prices, higher interest-rate expectations and political disruption produced dramatic results. Europe’s gas prices nearly doubled, benchmark short-term yields in Italy and Britain surged 70 to 100 basis points in some cases, and benchmark U.S. two-year yields were up more than 40 basis points. Japan’s yields reached their highest levels in 30 years, reflecting the breadth of the move higher in global rates and growing concern about the prospect of stagflation - stagnant growth paired with persistent inflation.
Those developments coincided with a severe repricing in equity markets, with nearly $10 trillion of global stock market value erased. The fallout reached into corners of the market that had previously appeared resilient. The technology giants that had been a dominant force struggled in this environment, while an emerging-market rally that had been gathering momentum was derailed. Traditional safe-haven assets did not deliver reliable protection: gold, the Swiss franc and top-rated government bonds all failed to provide their usual shelter.
Market practitioners describe the bond-market impact as unusually intense. Robert Dishner, head of trading in London at Neuberger Berman, observed that the moves have been more dramatic than those seen around the time COVID was easing and Russia had invaded Ukraine. "In 2022 we knew the direction (interest rates would move) just not the pace," he said. "But in 2026 the direction has been completely reversed, so it’s a much more meaningful change."
The first quarter’s extreme volatility did not begin with the Iran conflict alone. January featured a string of high-profile geopolitical incidents that unsettled markets earlier in the quarter: the U.S.’s capture of Venezuela’s President Nicolas Maduro and demands from Donald Trump to take control of Greenland, which is a semi-autonomous territory of Denmark. Those events helped catalyze sharp moves in commodity, currency and credit markets at the outset of the year.
Precious metals and sovereign credit saw sharp, unexpected moves. January produced the largest monthly rise in gold prices since the tail-end of the global financial crisis, and Venezuela’s long-defaulted bonds - which Caracas has not paid on for nearly nine years - rallied almost 50% since the Maduro grab, making them the world’s best-performing bonds over that period. Yet the sheltering effect of gold has since faded into March: gold fell more than 13% in the month, on track for its worst monthly performance since October 2008, even after having doubled since the start of the previous year.
Currency markets have been volatile and unequal in their responses. The U.S. dollar rose almost 3% in the most recent month after having fallen around 9% over the previous year, but the dollar’s recovery has not been universally reinforced by expected rate differentials. Several major central banks may lift rates by more than the Federal Reserve if the conflict persists, reducing the dollar’s advantage from higher U.S. rates. Meanwhile, the Swiss franc and Japanese yen - currencies typically supported by current-account surpluses and low domestic inflation - were weakened by internal issues.
Currencies of oil- and gas-importing countries endured heavy pressure. Egypt’s currency tumbled about 12% in the month as the country also faces a structural fiscal strain, reportedly spending roughly 60% of its revenues on interest payments on its debt, which amplifies the impact of a weaker currency. Other emerging-market currencies were down materially as well: Hungary’s forint, South Africa’s rand, the Thai baht and the Mexican and Philippine pesos each fell in a band between roughly 5% and 7% during the same period.
Risk assets beyond equities and FX were not spared. The private credit sector, a roughly $2 trillion market, showed signs of stress at some heavyweights, with spluttering noises reported at major managers including BlackRock and Blackstone. Bitcoin rallied alongside the dollar in March, but remained down close to 25% for the year.
The dispersion of returns has been broad and unusual. Every member of the so-called "Magnificent Seven" tech cohort underperformed the world-stocks benchmark over the period. South Korean equities experienced an extreme reversal as well - a rapid 50% surge earlier followed by a retrenchment that surrendered more than half of those gains. Defence stocks, which some investors expected to benefit from the geopolitical shock, failed to produce the anticipated lift.
On the policy front, central banks face a challenging backdrop. With the war in the Middle East altering energy and inflation dynamics, several major central banks were seen as likely to lift interest rates by more than the Fed if the conflict endures, potentially complicating currency and cross-border financial flows. The market is now grappling with whether the current geopolitical and economic shock could evolve into a broader crisis with social and political consequences on the order of the COVID shock. "It’s a real fork in the road," said Sahil Mahtani, director of Ninety One’s Investment Institute. "And if you have these quickening regime shifts as we have been seeing, that really changes the way you manage portfolios."
Looking ahead, the calendar offers additional potential sources of upheaval: major elections in Hungary and Britain and the denouement of the Warner Bros takeover are all due soon. Ninety One’s Mahtani noted that should the conflict and accompanying economic consequences persist, central banks’ policy responses and political events will continue to shape market trajectories into the second quarter.
For investors and institutions, the quarter underscored the limits of conventional diversification in the face of simultaneous shocks to energy, rates and geopolitics. The rapid re-pricing in rate-sensitive shorter-duration sovereigns and the broad weakening of currencies in import-dependent economies highlight the intertwined nature of funding mixes, external vulnerabilities and policy constraints. The quarter’s moves are a reminder of how quickly underwriting assumptions, credit stress tests and liquidity planning can be challenged when multiple regime shifts occur at once.
Summary - The first quarter delivered exceptional market volatility as an outbreak of war in Iran and earlier geopolitical incidents drove an almost 90% surge in Brent crude, near-doubling of European gas prices, sharp rises in global interest rates and almost $10 trillion of global equity losses. Safe havens and many traditional defensive plays underperformed, while emerging markets, certain currencies and parts of the private credit market experienced acute pressure.
Key points
- Energy shock: Brent crude futures rose almost 90%, marking the biggest Q1 jump on record and the second-largest quarterly gain on record, while Europe’s gas prices nearly doubled - squeezing import-dependent economies and shifting inflation dynamics.
- Bond-market repricing: Shorter-dated yields in Italy and Britain surged 70-100 basis points in some cases; U.S. two-year yields climbed over 40 basis points; Japan’s yields hit 30-year highs, amplifying concerns about stagflation risks and the distributional effects of higher rates across markets.
- Fragile equity and credit landscape: Close to $10 trillion of global equity market value was erased; tech leaders underperformed global benchmarks; private credit showed strain at large managers; Venezuela’s defaulted bonds and gold moved erratically amid the turmoil.
Risks and uncertainties
- Prolonged conflict - If the war in Iran continues, energy-driven inflation could persist, prompting further central bank tightening and heightening stress for oil- and gas-importing countries - notably hurting sovereigns and corporates relying on external funding.
- Policy divergence - Diverging central bank paths, where some major banks raise rates more than the Fed, could upset currency dynamics and complicate cross-border investment and funding conditions, adding pressure to emerging-market currencies and balance sheets.
- Market stress transmission - Weakness in risk-sensitive niches such as private credit and the potential for rapid shifts in equity leadership raise the risk of contagion to broader credit markets and institutional liquidity planning.
Overall, the quarter was a vivid illustration of how geopolitical shocks can cascade through commodity, interest-rate, currency and credit channels, producing rapid re-pricing and challenging many conventional assumptions about diversification and safe havens.