The Iran energy shock reverberates across financial markets

War has broken out and no one knows when it will end. Energy costs are shooting up—and with them investors’ expectations of inflation around the world. Traders are rapidly reassessing how hawkish central bankers will need to be to prevent prices more broadly from spiralling out of control. Uncertainty and the threat of higher interest rates are hammering stocks and government bonds, too.

In short, the shocks rippling through global markets feel much like those of February 2022, as Russia invaded Ukraine. Then, the most worrying aspect of the crash that followed was that all sorts of asset prices which should be moving independently in fact plunged together. If stocks and bonds both fall, while traditional havens such as gold offer little protection, financial outfits are more likely to start wobbling. Uncomfortably, the mayhem in markets sparked by the American-Israeli war against Iran looks like it, too, will batter asset prices across the board.