Middle East conflict triggers energy shock, Eurozone economic confidence plummets into negative territory.

As the war between the US/Israel and Iran erupts and spreads to many countries in the Middle East, igniting a new round of geopolitical superstorms sweeping through the global economy, investors' confidence in the growth prospects of the Eurozone economy has sharply declined against the backdrop of soaring oil and gas prices, casting a shadow over the previously improving economic growth prospects in Europe. A survey report released on Monday showed that after three consecutive increases, the Sentix index measuring investors' confidence in the Eurozone economy plunged significantly by 7.3 points to -3.1 in March, especially with the expectations sub-index severely hit. The index is based on a survey of 1,055 investors conducted from March 5th to 7th. Sentix CEO Patrick Hussy said in a statement, "This has led to significant market doubts about the recent economic outlook in the European Union." "Energy price shocks and geopolitical risks are significantly weakening the previously optimistic market sentiment about the expansion of the Eurozone economy." As shown above, the war between the US/Israel and Iran has led to a significant decline in the Eurozone Sentix economic confidence index. There are still no signs of positive easing in the Middle East conflict, leading to continued soaring oil and natural gas prices, exacerbating the market's concerns and fears about a sharp rise in inflation in the Eurozone and the serious concerns that the Eurozone is on the brink of "stagnation." At the same time, this latest geopolitical situation could also have a significant negative impact on the already fragile economic growth trend in the Eurozone. Despite calls from European Central Bank officials to be patient, the market has now factored in the possibility that the European Central Bank will raise interest rates twice this year to curb the sharp rise in inflation caused by energy prices. As concerns and panic about rising inflation and the economy heading towards 'stagflation' intensify due to soaring energy prices, traders are increasing their bets on the European Central Bank and the Bank of England embarking on a cycle of rate hikes. In contrast, on the eve of the outbreak of the war between the US/Israel and Iran, the market had once bet that the European and British central banks would continue their rate cut rounds in the second half of the year. "Stagflation" is arguably the most challenging long-term economic dilemma for central banks like the Federal Reserve, European Central Bank, and other global central banks. As of the time of writing, the international crude oil benchmark - Brent crude oil futures prices have surged by over 13%, continuing to stay above the important $100 per barrel level, having previously risen by as much as 30%. The primary reason for this surge is a complete interruption in the oil and gas transportation in the Hormuz Strait, leading to major oil-producing countries in the Middle East, including the UAE, cutting production. The early morning surge in oil prices marks the largest single-day gain since April 2020 and the highest oil price level since June 2022, continuing the 27% rise from last week. Oil prices surged to near $120 per barrel at one point on Monday, up nearly 80% since the outbreak of the Iran war; on Monday, European natural gas prices surged by 30%, nearly doubling since the eve of the outbreak of the Iran war, with Qatar's supply cut causing European natural gas prices to rise by about 50% in a single day last week, leading the market to interpret the continuous surge in oil and gas prices as a "higher inflation + more pessimistic economic" stagflation shock. In the forward market, traders currently estimate a 70% probability that the European Central Bank will raise interest rates twice by 25 basis points each this year, while last Friday the market only estimated one rate hike with the probability hovering around 50%. The first rate hike is already fully priced in by the market, with the first rate hike expected to be in July or earlier. At the same time, currency market traders currently believe that there is a 50% probability of the Bank of England announcing an interest rate hike by the end of the year, completely reversing the betting on a rate cut cycle that still existed last week. In the latest round of bond market sell-offs, European bonds are more vulnerable compared to other bond markets, mainly because Europe is more sensitive to external energy shocks, and German bonds' "safe-haven premium" is also structurally weakening. Europe is highly exposed to the global energy market, and in this round of shocks, German bonds are also burdened by factors such as expectations of German fiscal expansion, the European Central Bank's balance sheet contraction reducing official buying, and foreign investors being more sensitive to European bond yields; this means that European bonds are struggling to stably serve as safe-haven assets.