Markets retreat as Iran ceasefire tensions fuel inflation fears and UK gilt yields surge
Global equities pull back amid geopolitical instability, political uncertainty in London rattles bond markets, and US wholesale prices hit multi-year highs.
Global stock markets retreated on Tuesday as investors grappled with renewed instability regarding the month-long ceasefire in the Iran war. U.S. President Donald Trump described the truce as being on "life support", a characterization that has dampened sentiment and prompted a sharp rise in energy costs. Brent crude oil prices climbed to approximately $107 per barrel, marking a $10 increase from last week’s lows, while year-end futures recovered above the $90 per barrel mark.
The surge in oil prices has exacerbated concerns regarding U.S. inflation, with forecasts pointing to a significant acceleration in consumer prices. The April consumer price index is projected to show a 3.7 per cent annual increase, the highest reading since September 2023. This outlook is largely driven by rising gasoline costs linked to the conflict, adding pressure to an economic landscape already strained by a 6 per cent rise in the wholesale producer price index—the fastest rate of growth since Russia’s full-scale invasion of Ukraine in 2022.
In the United Kingdom, political uncertainty has sent long-dated gilt yields to their highest level since 1998. The spike follows poor performance by Prime Minister Keir Starmer’s party in recent local elections. Although Starmer has insisted he will remain in post, reports indicate that key cabinet members are urging him to establish a timetable for his departure. The resulting ambiguity regarding future fiscal and economic policy has also weighed on the sterling.
Monetary policy developments in the United States saw Kevin Warsh clear a key procedural hurdle in the Senate, advancing him toward confirmation as the next Federal Reserve Chair. Warsh is set to succeed Jerome Powell, whose term concludes on Friday. The anticipated inflation data, combined with the geopolitical backdrop, bolsters expectations that the Federal Reserve will keep interest rates on hold throughout the year.
Elsewhere in global markets, the South Korean KOSPI index recoiled, partly due to domestic concerns over potential windfall taxes on artificial intelligence-related profits. In currency markets, the U.S. dollar remained firm while the yen slipped. U.S. Treasury Secretary Scott Bessent, visiting Tokyo, stated that "excess volatility is undesirable" and confirmed close coordination with the Japanese Ministry of Finance to stabilise the currency.
