For the first time in years, the people managing the world's money are more worried about missiles than inflation. Some 70% of central banks — who collectively manage over USD 9.5 tn in reserves — now rank geopolitical tension as their top global risk, according to a Central Banking Publications survey of about 100 institutions picked up by Reuters.

That is a massive spike from the 35% who held that view in 2024, knocking US trade protectionism out of the top anxiety spot. Inflation and interest rates are still a primary five-year concern for just over half of reserve managers, but that figure has dropped from 76% last year.

Why it matters

The shifting geopolitical tectonic plates are shaking trust in US debt and the USD. Some 80% of reserve managers still view the greenback as the world's primary safe-haven currency, but its absolute dominance is increasingly being questioned. The USD index (DXY) shed over 12% against a basket of top currencies between January of last year and this year.

The appetite for US debt is also taking a major hit. Only a third of survey respondents expect US bonds to outperform those of other G7 economies and China. That is a big drop in confidence compared to 2024, when over 70% expected US Treasuries to lead the pack. The percentage of central banks that see the USD role directly impacting their reserve management decisions over the next five years has also jumped to 16%, up from just 3% last year.

What's next?

Gold is poised to catch the overflow: The clear beneficiary of this macro anxiety is gold. Nearly 75% of central banks currently hold the precious metal in their reserves, and almost 40% are actively considering increasing their exposure.

The regional ripple effects will be highly asymmetric. This shifting risk landscape was a core theme at the European Central Bank Watchers Conference, where policymakers highlighted how differently these shocks will land.

Europe's energy trap: Bank of Finland Governor Olli Rehn warned that Europe faces “asymmetric” exposure to Middle Eastern conflicts because of its structural reliance on imported energy. Rehn argued the bloc urgently needs targeted fiscal measures and common financing to bolster its own defense and capital markets.

China's buffers: China is relatively insulated from immediate energy shocks thanks to its massive strategic oil reserves, UBS chief China economist Tao Wang noted. Even if global oil spikes to USD 130 a barrel, it would only partially translate to domestic prices, though Wang warned that geopolitical risks globally have become “highly unpredictable.”

The Fed's credibility test: University of Wisconsin professor Menzie Chinn pointed out that the global economy is facing a “highly shocking” year. If the US Federal Reserve's credibility is eroded in this environment, it could fundamentally alter the USD’s international position and how foreign central banks manage their reserve holdings moving forward.

MARKETS THIS MORNING-

After yesterday's rally, Asian markets are down in early trading this morning amid fears that tensions between the US and Iran will escalate again. Japan’s Nikkei is down 0.5% and South Korea’s Kospi is down 1.3%. Meanwhile, US stock futures are flat.

TASI

11,339

+2.3% (YTD: +8.1%)

MSCI Tadawul 30

1,528

+2.1% (YTD: +10.1%)

NomuC

22,633

+1.5% (YTD: -2.9%)

USD : SAR (SAMA)

USD 3.75 Sell

USD 3.75 Buy

Interest rates

4.25% repo

3.75% reverse repo

EGX30

48,594

+4.1% (YTD: +16.2%)

ADX

9,869

+2.9% (YTD: -1.2%)

DFM

5,777

+6.9% (YTD: -4.5%)

S&P 500

6,783

+2.5% (YTD: -0.9%)

FTSE 100

10,609

+2.5% (YTD: +6.8%)

Euro Stoxx 50

5,913

+5.0% (YTD: +2.1%)

Brent crude

USD 96.70

-11.5%

Natural gas (Nymex)

USD 2.74

+0.4%

Gold

USD 4,713

-0.2%

BTC

USD 70,996

-1.3% (YTD: -19.0%)

Sukuk/bond market index

918.89

+0.5% (YTD: 0.0%)

S&P MENA Bond & Sukuk

149.24

-0.1% (YTD: -1.8%)

VIX (Volatility Index)

21.04

-18.4% (YTD: +40.7%)

THE CLOSING BELL: TADAWUL-

The TASI rose 2.3% yesterday on turnover of SAR 8.4 bn. The index is up 8.1% YTD.

In the green: Sfico (+10.0%), Gulf Union Alahlia (+10.0%), and UCA (+9.8%).

In the red: Sisco Holding (-8.4%), Petro Rabigh (-6.2%), and Yansab (-5.3%).

THE CLOSING BELL: NOMU-

The NomuC rose 1.5% yesterday on turnover of SAR 26.5 mn. The index is down 2.9% YTD.

In the green: Sign World (+16.9%), Almodawat (+16.2%), and First Avenue (+12.8%).

In the red: Naseej Tech (-9.0%), Food Gate (-7.7%), and Tharwah (-6.3%).

CORPORATE ACTIONS-

Taiba Investments will almost double its capital to SAR 5 bn via the issuance of one bonus share for every 1.09 existing shares after it got the green light from the Capital Market Authority, according to a Tadawul statement.

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