As we noted in our previous reports, the focus of markets in the coming period will not be solely on labor market or inflation data, but rather on geopolitical developments in the Middle East. Economic data may initially be positive, only for the picture to change rapidly, or it may be negative, only for expectations to improve. However, the most significant factor capable of altering the landscape in the short term remains the trajectory of the geopolitical crisis.
The coming weeks are becoming increasingly important as the US midterm elections approach on November 3, 2026. These elections determine all seats in the House of Representatives and approximately one-third of the seats in the Senate.
The markets are then left with two starkly contrasting scenarios: either a further escalation in the Middle East, or a political move that leads to de-escalation and a negotiated settlement. Between these two scenarios lies a vast difference in how many asset classes are priced.
Escalation scenario
Should the confrontation escalate, energy markets will likely be among the first to be affected. Oil and natural gas could face strong upward pressure, particularly with the approach of winter and the seasonal increase in energy demand for heating in Europe and the United States.
The greatest threat to the oil market, however, is linked to maritime energy routes. The issue isn't limited to the Strait of Hormuz; it also includes the Bab el-Mandeb Strait and the Red Sea. Data from the U.S. Energy Information Administration shows that oil flows through Bab el-Mandeb reached approximately 8.1 million barrels per day during the second quarter of 2026 , highlighting the crucial role this waterway plays in the global supply chain.
Any major disruption to navigation through Bab al-Mandab could force ships to take longer routes around the Cape of Good Hope, increasing travel times and shipping costs and complicating the delivery of supplies to markets.
These risks are all the more significant given the existing constraints on energy flows in the region. The latest estimates from the U.S. Energy Information Administration indicate that disruptions in the Strait of Hormuz and the Bab el-Mandeb Strait have already contributed to reduced oil exports and production in the region, assuming these flow constraints persist through the fourth quarter of the year.
A new wave of inflation?
If the escalation leads to a new surge in oil and gas prices, the effect could quickly spill over into inflation through fuel, transportation, shipping and production costs.
This is where the problem becomes more complex for central banks: an economic slowdown on one hand, and renewed inflationary pressures on the other. This could lead to a rise in bond yields again if markets reprice their expectations for interest rates and inflation.
Financing pressures on American consumers are already high. The average interest rate on a 30-year fixed-rate mortgage was 7.28% on October 1 , up from 7.03% the previous week.
As for new car loans, the latest available Experian data indicates an average interest rate of approximately 6.35% during the second quarter of 2026, with the rate varying significantly according to the borrower's credit rating.
Therefore, a further rise in energy and interest rates could mean more pressure on real income, purchasing power and consumer confidence, and could subsequently be reflected in spending, employment, investment and growth rates.
Stocks and metals are not out of danger
In a severe escalation scenario, stock markets could come under pressure due to higher energy and financing costs and declining earnings and growth expectations.
Even gold and silver are not necessarily immune to short-term downturns. During periods of high volatility and increased liquidity, investors may liquidate profitable positions in metals to cover losses or margin requirements in other markets. The same can increase volatility in digital assets and other high-risk assets.
Meanwhile, US and European bond yields could rise again if inflation becomes the dominant pricing factor, meaning higher borrowing costs for governments, businesses, and households.
The other scenario...
The alternative scenario is reaching an agreement or understanding that leads to a reduction in geopolitical risks and a greater restoration of the smooth flow of energy.
In this case, the markets might react quite differently: a lower risk premium in oil and energy, a reduction in some inflationary pressures, and an improvement in risk appetite. But the magnitude of these movements will depend on the nature and sustainability of the agreement, not just its announcement.
Herein lies the fundamental problem for investors: the difference between the two scenarios is enormous .
Therefore, labor market and inflation data will remain important, but in the coming weeks they may become part of the picture rather than the whole picture.
A jobs report is released, then a major geopolitical development could shift market expectations within hours. Similarly, a high inflation reading could be followed by a sharp drop in energy prices due to a political breakthrough, rapidly altering future outlooks.
The next phase is not just about economic figures, but also about geopolitical risks that could reshape the pricing of energy, bonds, stocks, metals, and currencies within a short timeframe. Therefore, we must prepare for the possibility of sharp price movements in both directions, and not base our investment strategy on a single economic reading.
