Risk-off mood deepens as inflation and oil jolt markets

Summary

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Podcast Summary: Moving Markets — Risk-off Mood Deepens as Inflation and Oil Jolt Markets

Date: May 13, 2026
Host: Roman Canciani
Guests: Jan Bob (Product & Investment Content), Dario Messi (Head of Fixed Income Research), Nenat Dinit (Equity Strategy Research)

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Main Theme

This episode of “Moving Markets” offers a comprehensive overview of how escalating geopolitical tensions, resurging oil prices, and persistent inflation are unsettling global financial markets. The hosts and guests analyze bond and equity market reactions, discuss evolving sector and regional equity ratings, and outline the latest developments relevant to investors.

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Market Update & Key Insights

(With Jan Bob)

Geopolitics and Oil

• US-Iran Tensions:
  • The fading possibility of a US-Iran deal has driven up oil prices.
  • Quote (Jan Bob, 01:10):
    “The mood has shifted quite quickly, actually. Investors now feel a deal looks further away. And that uncertainty has pushed oil prices higher again.”
• Oil Price Movements:
  • Brent up 3.4% to nearly $108/barrel; WTI up 4% above $100.
  • Oil prices now exceed levels before last week’s more optimistic headlines.

Inflation Concerns

• Ripple Effects:

  • Higher oil prices directly revived inflation worries across markets.
    • Quote (Jan Bob, 01:47):
      “Energy feeds into almost everything. So when oil spikes, inflation concerns follow.”
  • US April headline CPI jumped to 3.8% YoY—the highest since May last year.
  • Main drivers: petrol (+28% over two months), food prices.
  • Real wages fell for the first time in three years.

• Sectoral Impact (02:29):

  • “Grocery prices, rents, and airfares all increased. And real wages fell... as inflation outpaced pay growth. Importantly, services inflation, excluding energy and housing, was also stronger than expected.”
  • (Jan Bob citing Chicago Fed President Goolsbee, calls it "particularly troubling.")

Bond Markets’ Reaction

• Yield Spike:
  • US Treasury yields rose across the curve, with 2-year yields at June highs, 30-year yields ~5% (03:00).
  • German and UK government bond yields surged to multi-decade highs.
  • UK gilt yields approached late-1990s levels amid political uncertainty over PM Keir Starmer, following poor local election results and ministerial resignations.

Equity Markets Update

• US Markets:

  • S&P 500: -0.2%, Nasdaq: -0.9%, both bouncing from worse intraday lows due to a rotation into defensive sectors (healthcare, consumer staples).
  • Semiconductor and tech stocks sold off; Philadelphia Semiconductor Index fell 3% intraday, closed partially recovered.

• European Markets:

  • DAX: -1.6%
  • CAC: -1%
  • STOXX 600: -1%
  • FTSE 100: more resilient due to energy sector weighting.

• Asia:

  • Improved sentiment: Nikkei +0.8%, Kospi (semiconductors) +3%, US futures higher pre-open.
  • Noted news: Nvidia CEO Jensen Huang joining President Donald Trump’s visit to China shines spotlight on AI and tech. (05:22)

Currencies and Gold

• USD Strengthens:
  • +0.4% (higher rate expectations, risk-off mood).
• Sterling Weakens:
  • -0.6% vs. USD.
• Gold drops 1%:
  • Cited stronger dollar and inflation concerns.

What’s Ahead

• Data to Watch:
  • US April PPI.
  • Eurozone industrial production.
  • Earnings season continues.
• Central Bank:
  • Kevin Walsh expected to be confirmed as new Fed Chair.
• Geopolitics:
  • Ongoing focus on US-China relations, with President Trump visiting Xi Jinping.

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Fixed Income Market Perspective

(With Dario Messi, Head of Fixed Income Research — starting at 06:52)

Bonds vs Risk Assets

• Observation:

  • Despite volatility, risk assets are behaving optimistically compared to earlier phases of the conflict.
  • “Spreads are very, very tight even after this slight widening that we saw again yesterday. But bond yields remain elevated, and that’s the clear mark of the oil shock.” (07:05)

• Current Unusualness:

  • Traditionally, supply-driven oil price shocks would produce more balanced bond yield moves. Now, central banks are responding more directly to oil.

Monetary Policy Outlook

• Central Bank Stance:

  • Central banks (Fed, ECB) stay focused on risk management—won’t look past energy shocks easily given recent inflation history.
    • “Central banks, they really need to take this into account... Now we heard Jan before, for the Fed for example, again some hiking premium coming back.” (08:19)
  • Markets already priced in a hawkish reaction, so only a more decisive oil surge would trigger further hawkishness.

• Investment Implication:

  • Inflation expectations remain anchored.
  • No immediate change in duration bias at current yield levels.

UK Gilt Market Outlook

(Starts at 09:22)

• Pressure But Opportunity:
  • UK political risk reflected in higher yields—now look attractive for exposure/diversification if FX-hedged.
    • “We are actually not extremely worried about it and in fact it seems here that we even have a good opportunity to get some exposure at the moment for some diversification reasons as well. I will probably do it more on a FX hedged basis.” (09:37)
• Fiscal Outlook:
  • IMF confirms UK fiscal health looks relatively better than other advanced economies.
  • Even with a change in government, “the memory is fresh enough that any new government would find it hard to really play here with financial markets.” (10:46)
• Conclusion:
  • “All in all, I think, yeah, the yield level is attractive here.” (10:49)

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Equity Strategy Update

(With Nenat Dinit, Equity Strategy Research — starting at 10:59)

Global Sector Views

• Communications Sector Upgraded to Overweight:
  • Drivers: accelerating top-line growth, earnings momentum.
  • Sector includes:
    • Internet/digital advertising (AI-exposed, two of the “Magnificent Seven”)
    • Classic telecoms (defensive, income focus)
  • AI Monetization:
    • “We’re now seeing clearer signs of AI monetisation. Revenue growth has re-accelerated, which suggests that AI investments are translating into higher advertising efficiency, stronger user engagement, also improved monetization.” (11:24)
  • Valuations reasonable versus other AI-linked segments.
  • Defensive telecoms add earnings resilience and shareholder returns.
    • “Stable cash flow can be actually quite attractive for investors.” (12:10)

European Country Positioning

• Prefer Periphery (Italy, Spain) over Core (Germany, France):

  • Italy & Spain Upgraded (from Neutral to Overweight):
    • Sector composition: banks (~50%), utilities (~20%)—both on earnings upgrade streak.
    • Utilities: benefiting from AI-driven data center power demand, with Spain especially attractive due to cheap power from renewables.
  • “Despite the already strong performance in both banks and utilities, we still recommend leaning in into this strength rather than fighting the trend.” (13:03)

• Germany & France Downgraded:

  • Germany: Neutral
    • Fiscal expansion optimism faded; Iran war brought new risks and delays. Defense spending hasn’t offset manufacturing weakness.
    • “Near term translation into earnings is slower than initially projected.” (14:29)
  • France: Underweight
    • High exposure to consumer/luxury, which is facing negative earnings revisions and weak demand.
    • Elevated political risk premium: “We believe this fragile minority government will be struggling further to consolidate their public finances.” (15:38)
    • Periphery countries show better budget trajectory.

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Notable Quotes & Moments

• Jan Bob on Oil and Inflation:

  • “The mood has shifted quite quickly, actually. Investors now feel a [US-Iran] deal looks further away. And that uncertainty has pushed oil prices higher again.” (01:10)
  • “Energy feeds into almost everything. So when oil spikes, inflation concerns follow.” (01:47)

• Jan Bob on Wages:

  • “Real wages fell for the first time in three years as inflation outpaced pay growth.” (02:29)

• Dario Messi on Bond Markets:

  • “Spreads are very, very tight even after this slight widening that we saw again yesterday. But bond yields remain elevated, and that’s the clear mark of the oil shock.” (07:05)

• Nenat Dinit on Communications:

  • “What makes the communication sector interesting is that it’s highly diverse... investors basically get exposure to both AI-driven growth and also defensive income characteristics in one sector.” (11:31)

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Key Timestamps

• 01:10 — Oil & Geopolitics
• 01:47 — Inflation worries escalate
• 03:00 — Bond market reaction
• 04:06 — Equities performance
• 05:44 — Currency & gold reactions
• 06:52 — Fixed income market deep dive (with Dario Messi)
• 10:59 — Equity sector and country view changes (with Nenat Dinit)
• 11:19 — Communication sector upgrade
• 13:06 — Preference for Italy & Spain over Germany & France

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Concluding Note

The episode provided actionable and nuanced perspectives for investors navigating heightened geopolitical risk, inflation, and changing monetary policy expectations. With clear rationales behind sector and country rotations, the Julius Baer team underscores the need for vigilance but also highlights opportunities in credit, UK government bonds, and select equity segments—particularly where structural shifts (AI, renewables) are driving earnings and valuation resilience.

Transcript

[A]

Good morning and welcome to Julius Baer's Moving Markets podcast. I'm your host, Roman Canciani. Today is Wednesday 13th May. We'll begin, as always, with our market update, reviewing the key developments from the past 24 hours. I'm joined by Jan Bob from our product and investment content team, who will bring us up to speed on the latest market moves. After that, I'm pleased to welcome Dario Messi, head of Fixed Income Research. For our regular Wednesday discussion, we'll take a closer look, a closer look at the latest twists and turns in fixed income markets and what they mean for our strategy. Finally, I'll be speaking with Nenat Dinit from our equity strategy research team. They've made several rating adjustments in recent days and he'll walk us through what's changed and why. But first, let's start with a roundup of the latest developments in global financial markets. Good morning, Jan. Good morning, Rohan. So, Jan, let's start with geopolitics and oil. Just one week ago, markets were more hopeful about a possible US Iran deal. That optimism has clearly faded, hasn't it?

[B]

Yeah, exactly. The mood has shifted quite quickly, actually. Investors now feel a deal looks further away. And that uncertainty has pushed oil prices higher again. Brent rose 3.4% yesterday to almost 108% a barrel, while WTI jumped more than 4% and moved also back above the $100 mark. Even though prices eased slightly in Asia this morning, oil is now back above levels seen before last week's more optimistic headlines.

[A]

And higher oil prices quickly reignited inflation worries.

[B]

Exactly. Energy feeds into almost. So when oil spikes, inflation concerns follow. Investors are increasingly focused on how higher energy prices from the Iran conflict might affect inflation and consumer spending, which makes up about two thirds of the U.S. economy. And yesterday's U.S. inflation data for April didn't help ease those concerns. On the contrary, headline CPI rose to 3.8% year on year. That's the highest since May last year. And it was driven by sharp increases in petrol and food prices.

[A]

Yes, that's right. Petrol prices were striking up almost 28% over just two months.

[B]

Yes, and it's filtering through Roman. Grocery prices, rents and airfares all increased. And real wages fell for the first time in three years as inflation outpaced pay growth. Importantly, services inflation, excluding energy and housing, was also stronger than expected, which Chicago Fed President Goolsbee described as particularly troubling.

[A]

Right, and how did bond markets react to that mix of higher oil and hotter inflation?

[B]

Yeah, that's a good question. I mean, Yields moved higher across the curve. Short dated US treasury yields jumped, pushing two year yields towards the highest level since June. But longer dated yields also climbed with the 30 year trading around 5%. And this wasn't just a US story.

[A]

Indeed, Europe felt the pressure too, right?

[B]

Yes, very much so. German bond yields rose to the highest levels since 2011 and UK guild yields moved to multi decade highs. In the UK, political uncertainty added fuel to the move. Gilt markets sold off with the longer maturities approaching levels last seen in the late 1990s. Pressure on Prime Minister Keir Starmer has intensified in recent days after a poor set of local election results, prompting calls from within his own party for him to step down. Several ministers resigned, although Starmer has said he intends to stay on.

[A]

Right, so let's turn to equities now, which also had a difficult session, I understand.

[B]

Yes, it was a mixed and uneasy day for equity markets. Higher oil prices and hawkish inflation data weighed on sentiment. This also wasn't helped by chip makers and tax selling off. The Philadelphia semiconductor index fell about 3%, though it recovered much steeper intraday losses. The S&P 500 and Nasdaq closed lower, down 0.2 and 0.9% respectively. But that was also well off their lows thanks to rotation into defensive sectors like healthcare and consumer staples.

[A]

Yes, and Europe struggled more, right?

[B]

That's right, Roman. Concerns around Iran and oil weighed heavily on the region. The ducks fell 1.6%, the cacao almost 1% and the pan Europe Stoxx 600 about 1%. The FTSE 100 was relatively resilient given its heavy energy weight. However, in Asia this morning, sentiment has improved, with the Nikkei up around 0.8% and the semiconductor heavy Cosby rebounding strongly almost 3% higher as we speak. And US futures are also pointing to a higher open later today. One reason for the improving sentiment, Roman, is that news that Nvidia's CEO Jensen Hu join US President Donald Trump on his visit to China as a last minute addition to the trip, which is thrusting AI and technology really back into the spotlight.

[A]

Interesting. Well, before we come to the day ahead, how did currencies and gold react to all of this?

[B]

Well, the US dollar strengthened by around 0.4%, reflecting higher rate expectations and the risk of sentiment. Sterling underperformed, falling 0.6% against the dollar and gold slipped more than 1%. Both the stronger dollar and inflation concerns are weighing on the precious metal.

[A]

Finally, what's on the radar today?

[B]

Well, investors will watch further US Inflation data with April ppi Eurozone industrial production figures and ongoing earnings reports, of course. And then Kevin Walsh is expected to be confirmed as Fed Chair today. He has cleared a key Senate vote to join the Fed's Board of Governors yesterday. And of course, geopolitics remain front and center. Markets will closely follow developments around US China relations as President Trump travels to meet President Xi Jinping. And that is all from me today. Thank you.

[C]

Great.

[A]

Thank you very much Jan for this comprehensive wrap.

[B]

Thanks for having me.

[A]

And with that over to you. Dario, good morning. Hello.

[D]

Good morning, Roman.

[A]

Well, risk assets seem to have largely looked through the recent geopolitical tensions. How are bond markets reacting in comparison?

[D]

Yeah, I mean we just heard Jan before maybe when you look on a week, on week basis or compared to last week, it's a bit less optimistic. That's true. But really if you compare it to the full period since the war started, the risk assets there really looks rather optimistic. So within the fixed income space, when you look at credit, they also definitely look beyond the war shock. So spreads are very, very tight even after this slight widening that we saw again yesterday. But what you don't see on the bond yield level, they are still elevated. And there we really see still this mark from the oil shock. This is quite unusual also, especially if you think about the nature of the shock. It's a supply driven one. That's when you would expect some more balanced cove movements actually with oil prices the difference this time. We talked about this in this podcast quite often already. It's really the one to one impact on monetary policy expectations. So central bankers are much more reacting to the oil developments these days than they usually would.

[A]

So building on that, what does this imply for the outlook on monetary policy?

[D]

Well, I would say there is the good and the bad side of things here. So on the bad side, oil is not coming lower as quickly as we probably hoped for. And central banks, they really need to take this into account. As I said before we talked about this, given this inflationary period that we just had over the last couple of years. Fed ECB and code, they're just much more in risk management mode and will not want to look through here for too long at least on the good side. I think here markets really priced already quite some hawkish reaction function. Now we heard Jan before for the Fed for example, again some hiking premium coming back. So it really needs a more decisive and lasting oil push again to get even more hawkish central banks from here. And also inflation expectations remain anchored. So again we would not change here when it comes to the investment conclusion, the duration bias at current levels.

[A]

And finally a more specific question. We've seen renewed weakness in bond markets, particularly in UK gilts over the past days. Jan alluded to it earlier. How do you assess the current state of the UK sovereign bond market?

[D]

Yeah, we are also getting increasingly questions on that one here. I mean we are actually not extremely worried about it and in fact it seems here that we even have a good opportunity to get some exposure at the moment for some diversification reasons as well. I will probably do it more on a FX hedged basis. But now why are we not super concerned? I think first the political risk is already reflected in the extra yield premium that you get so that the fiscal outlook looks actually comparably good. This was also confirmed by the latest IMF fiscal monitor. Especially also when you compare it to other advanced economies. You have fiscal deficits that they were high but they should come down and the debt ratio should not extend from current levels. This is actually in stark contrast to other countries like for example the us. And I think most importantly, even if the current government is not going to survive, I think even in that scenario the memory is fresh enough that any new government would find it hard to really play here with financial markets. So all in all, I think, yeah, the yield level is attractive here.

[A]

Very good. Thank you very much Dario for your insights this morning.

[D]

Thank you for inviting me, Roman.

[A]

Well, and now it's your turn, Neenat. Thanks for your patience. Good morning.

[C]

Good morning, Roman.

[A]

So the earnings season in the US and Europe is largely behind us and it's prompted a few rating changes on your end. Let's start with the global sector views. You've upgraded communications back to overweight. What's behind that call?

[C]

Yes. So it really comes down to two things. Accelerating top line growth and improving earnings momentum. What makes the communication sector interesting is that it's highly diverse. So you have two very distinct industries driving the performance. On one side we have the Internet and digital advertising platform which is dominated by two of the magnificent seven companies. And on the other side you have the classical telecom providers. So investors basically get exposure to both AI driven growth and also defensive income characteristics in one sector. And what's important for the Internet and digital advertising platforms is that we're now seeing clearer signs of AI monetization. Revenue growth has re accelerated, which suggests that AI investments are translating into higher advertising efficiency, stronger user engagement, also improved monetization. And if capex growth starts to moderate from 2027, these names should be well positioned compared to other AI segments valuations also for the sector are still reasonable in our view. And on the other hand the classical telecom operators, they offer value in our view also they have somewhat of an earnings resilience and attractive shareholder returns, especially in an environment where macro uncertainty remains elevated. And this stable cash flow can be actually quite attractive for investors.

[A]

Right, let's move to Europe where you've made several country rating changes. You're now favoring the periphery over the core. So Italy and Spain over Germany and France. What's driving this shift?

[C]

Right, so we've upgraded both Italy and Spain from neutral to overweight and it's mainly driven by the sector composition. So banks make up nearly 50% of the index weight and utilities account for another 20%. And within Europe we actually see that banks and utilities have seen the most consistent upside revisions in earnings over the past few months and they still continue to be in net upgrade trajectory. Whereas other sectors like consumers or other cyclicals like materials, IT or oil and gas, they only catched up more recently. So despite the already strong performance in both banks and utilities, we still recommend leaning in into this strength rather than fighting the trend. And I also believe it's worth highlighting that utilities are defensive by nature, but now there is a growth tilt. Basically utilities are benefiting from rising power demand linked to the AI infrastructure build out and also the data center electrification. And Spain is particularly attractive here because it's actually become one of the cheapest power markets in Europe due to their high penetration of renewable energy.

[A]

Interesting. And on the flip side, you've downgraded both Germany and France. What went wrong there?

[C]

Yes, we've downgraded Germany to neutral. The initial enthusiasm about fiscal expansion from early last year has faded in our view. And the Iran war has added an additional layer of execution and delay risks. Also, Europe's increase in defense spending has fallen short of expectations and it's certainly not enough to offset the weakness elsewhere in manufacturing. We still see the German fiscal stimulus as a supportive theme long term. And it's very likely that we re engage with this theme at a later stage, particularly in the mid cap segment. But for now, the near term translation into earnings is slower than initially projected. And France there, the downgrade to underweight was mainly driven because of the elevated exposure to consumer sectors, particularly luxury, which is facing the weakest demand or weakest negative earnings revision trend across all sectors. And in our view, France also has a relatively high political risk premium compared to the other peers. And we believe this fragile minority government will be struggling further to consolidate their public finances, whereas the other periphery countries, for example, actually have seen quite a strong improvements in terms of their budget targets.

[A]

Great. Thank you very much Nilat for this comprehensive update.

[C]

Thank you Roman for the invitation.

[A]

Well, and that's all for today. As a reminder, there won't be a Moving Markets daily podcast tomorrow Thursday due to a public holiday here in Switzerland, but we'll be back on Friday, same time, same place, of course. So my thanks to our speakers this morning and thank you for tuning in. If you enjoyed today's episode and haven't yet subscribed, don't forget to do so, and please consider leaving us a review on your preferred podcast platform. Do join us again on Friday when Jan will be back, but this time as your host and he will be speaking with more colleagues about what's moving market. So until then, have a great day and goodbye for now. The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal.