The Strait of Hormuz, key to the markets: rising energy prices and fears of inflation

The week has been marked by increased geopolitical tensions in the Middle East. The initial reaction of the markets has been moderate, as they await further clarity and hope that the conflict will not drag on.

This is according to Carmen Borondo, Fixed Income Manager of the Sustainable Range at Santander Asset Management, who believes that the main impact of this conflict "depends on the duration of the closure of the Strait of Hormuz, through which around 20% of the world's oil and gas supply passes. A prolonged closure could impact global growth and trigger a new wave of inflation."

All in all, the benchmark Brent crude shot up 16% during the week, reaching $83 per barrel. The price of European gas also rose sharply, more than 70% since last week, following the closure of the largest liquefied gas export plant in Qatar, reaching E54 per megawatt/hour.

Stock markets falling

Reflecting this energy escalation, "the stock markets fell and there was selling pressure on fixed income," he said. In equities, meanwhile, "European indices performed relatively worse than US stock markets. In the United States, the economic data released continues to be very strong: for example, the ISM services index far exceeded expectations and rose in February to 56.1, which is the highest level since July 2022, providing strong support for business investment."

On the other hand, "the Eurostoxx 50 fell more than 5% during the week compared to the SP 500, which fell just 1%." In Asia, meanwhile, "equities posted their biggest drop in almost a year. The losses were led by the biggest stock market crash in history for South Korea's Kospi, which fell 12% before rebounding the next day and recovering part of the loss." In the fixed income market, the sharp rise in inflation expectations "has pushed up sovereign yields. The yield on the 10-year US bond rose above 4.10%," he adds.

The Eurostoxx 50 fell more than 5% during the week compared to the SP 500, which fell by just 1%."

And what happened in Europe? In our immediate environment, " sovereign debt yields followed a similar trend: the German 10-year bond rose to 2.80%, the Italian bond to 3.50% and the Spanish bond to 3.25%."

Credit spreads "also reflect uncertainty, but with very moderate movements, especially in companies with high credit quality. We have also seen some caution among issuers, with the primary market less active than expected." In currencies, the euro has been penalized against the dollar amid expectations of a deterioration in the trade balance of the Eurozone, which is structurally an energy importer. In the commodities market, gold is consolidating at levels above $5,000 per ounce.

Credit spreads also reflect uncertainty, but with very moderate movements.

Given this context, what should we expect? Looking ahead to the coming days, "we will be monitoring developments in the Middle East to assess the impact of energy market movements on inflation and growth."

In any case, "the year invites us to remain invested, with diversified portfolios adapted to each client's risk profile and investment horizon, applying active management," he concludes.

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The week has been marked by increased geopolitical tensions in the Middle East. The initial reaction of the markets has been moderate, awaiting further clarity and in the expectation that the conflict will not be prolonged.