A turbulent week in markets as oil surged back above $100, inflation fears reignited, and markets whipsawed between escalation risk and uneasy calm.
Read this article to understand:
- The key market movements this week
- How this is impacting interest rate expectations
- Why we expect more volatility in the coming weeks
Financial markets have endured a highly volatile, event-driven week, dominated by developments in the Middle East and their implications for global energy markets, inflation and monetary policy. While risk assets have not moved into crisis territory, price action has been sharp, fast-moving and unusually sensitive to headlines.
Oil markets were at the centre of this volatility. Following an escalation in the conflict between the US and Iran over the weekend of March 7-8, Brent crude surged to levels not seen since 2022, briefly trading close to $120 per barrel. The move reflected fears of severe supply disruption, particularly around shipping through the Strait of Hormuz. Then, in a defining moment for markets, prices reversed violently after comments from President Trump suggested the conflict could be shorter-lived than feared. Brent fell by more than ten per cent in a single day, marking one of its largest daily moves since the pandemic.
That relief proved temporary. As the week progressed, renewed attacks on shipping infrastructure, evacuations of export terminals in the Gulf and increasingly hardline rhetoric from both sides reignited concerns that disruption could be prolonged.
By the end of the week, Brent crude once again rose to above $100 per barrel. Crucially, oil futures also moved higher, signalling that markets were no longer treating the shock as purely temporary. As of Friday morning, March 13, Brent crude was up 41.5 per cent in March and 68 per cent year-to-date.
These sharp moves fed directly into inflation expectations. One-year inflation swaps in Europe jumped, while bond market prices across developed economies fell steeply. European government bonds were particularly affected; ten-year German government bond yields rose to their highest levels since late 2023 and were trading at 2.97 per cent by Friday morning.
Markets also began to expect tighter monetary policy in both the UK and euro area to come sooner. They are now pricing interest rate rises by the end of 2026. In the US, investors expect the first Federal Reserve rate cut to be pushed back, with easing now priced much later than previously anticipated.
Equity markets reflected this uncertainty. Global equities sold off during periods of rising oil prices and hawkish central bank rhetoric, before stabilising when fears of escalation briefly eased. US equities have been relatively resilient, down by three per cent between March 1 and 13, 2026. They have been supported by strength in large technology stocks and energy companies, and partly insulated by strong domestic oil production.
UK and European equities have faced greater pressure. They are down by 5.1 per cent and 5.9 per cent respectively over the same period, reflecting their higher sensitivity to energy costs and interest rate expectations. But, while volatility remains high, it is still well below levels associated with systemic stress.
Despite the turbulence, it is important to keep things in perspective. Global equities are down by just 0.2 per cent in local terms so far in 2026, equity markets are still well away from the kind of ten per cent fall that’s typically seen as a meaningful setback, and bond markets remain orderly. Oil futures are still well below spot prices, suggesting investors see scope for an eventual de‑escalation or supply responses, including potential releases from strategic reserves. Gold prices have remained soft, having fallen by 3.8 per cent since the beginning of March.
Looking ahead, markets are likely to remain highly reactive to geopolitical developments. The key question is whether current energy disruptions persist long enough to embed higher inflation and materially alter the path of monetary policy. Until greater clarity emerges, volatility is likely to remain a feature rather than a bug.1
References
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of March 13, 2026.
