Global markets on tenterhooks as 'new cold war' turns hot
As military spending ramps up around the world and countries rush to ringfence critical industries, political rhetoric appears to have darkened from one sketching geopolitical risks to outright preparation for war.
Whether global markets should take more note is a moot point. Investors are already preoccupied with a full-blown trade war, which has aggravated international tensions and is much like the latest ratchet in U.S. steel and aluminium tariffs.
But it is not hard to find the 'safety' trades thriving. Gold is less than 2% from a record close set a month ago, having climbed almost 30% so far this year. The Swiss franc , also up almost 10% this year, is pushing higher too.
Most obvious of all is the nearly 50% rise in European defence stocks since January.
Safety trades that have not barked are just as interesting.
The dollar's haven status has been undermined by U.S. trade and tax worries and President Donald Trump's domestic institutional upheavals.
And government bonds are pressured precisely because the additional defence spending associated with another generational arms race is exaggerating outsized post-pandemic debt loads even more. Global government debt indexes remain in the red for 2025.
"Elevated geopolitical risk affects issuers through multiple transmission mechanisms," credit rating firm Fitch said on Friday, adding it "put upward pressure on defence spending, making fiscal consolidation more challenging for certain sovereigns."
War drumbeat
But at whatever part of the market risk dial you put world war worries, there is no doubt the temperature has risen.
Even in the last few days, the language surrounding future major power conflicts has been alarming.
Goading Asian allies to match European moves to boost military spending, U.S. Defence Secretary Pete Hegseth warned on Saturday that Chinese military moves to take Taiwan were "imminent".
"There's no reason to sugar coat it. The threat China poses is real, and it could be imminent," Hegseth said, adding that any attempt by China to secure Taiwan militarily "would result in devastating consequences for the Indo-Pacific and the world".
Beijing reacted angrily and said Hegseth "vilified China with defamatory allegations".
But senior U.S. officials have repeatedly briefed that they believe Chinese President Xi Jinping has ordered his military to be ready to invade Taiwan by 2027, even if they say no direct decision appears to have been made.
Back in Europe, the drum beat about the need to lift military spending is even louder, more fearful of a threat from Russia. Nearly a trillion euros ($1.14 trillion) of extra German and European-wide defence spending have been earmarked this year.
Only last week, Chancellor Friedrich Merz said Germany and its NATO partners were prepared to defend every inch of the alliance's territory.
"Anyone who threatens an ally must know that the entire alliance will jointly defend every inch of NATO territory," Merz said on Thursday at a military ceremony in Vilnius to mark the establishment of a German brigade in Lithuania.
Britain's strategic defence review on Monday also addressed threats from Russia, nuclear risks and cyberattacks by outlining investment in drones and digital warfare. But the plan also expands the UK's fleet of attack submarines, which are nuclear-powered but carry conventional weapons, and will spend 15 billion pounds ($20.3 billion) by 2029 on replacement of nuclear warheads for its main nuclear fleet.
And again, the rhetoric was alarming.
"We are being directly threatened by states with advanced military forces, so we must be ready to fight and win," Prime Minister Keir Starmer.
'NEW COLD WAR' TURNS HOT
If securing the funding needs political alarm, then maybe that explains some of the high-octane public relations.
But there is no shortage of deeply entrenched conflicts raging across the globe and threatening to spill over to varying degrees. Multilateral solutions seem distant as the globe breaks in the blocs.
Even with negotiators exploring a ceasefire in Istanbul, Ukraine's forces made an extraordinary move this weekend to attack strategic bomber aircraft at bases deep inside Russia.
Israel's devastation of Gaza in reprisal for the 2023 massacres by Hamas shows no sign of ending. More than 30 more Palestinians were killed and nearly 170 injured on Sunday near a food distribution site.
Reports continued to circulate last week that Israel is threatening to disrupt nuclear talks between Washington and Tehran by striking Iran's nuclear facilities.
And nuclear-armed India and Pakistan have just stepped back from another tense border conflict that marked the fiercest fighting in decades.
The expansion of 'hot' conflicts is a mounting concern in political circles, with extraordinary territorial claims thrown into the mix.
Trump's public ambition to take over Panama and Greenland have jarred allies, with the latter being part of rivalry over access to rare minerals and also amid strategic plays for the Arctic.
Even J.P. Morgan boss Jamie Dimon gets the drift, reportedly telling Barron's last week the United States should not be stockpiling Bitcoin, but instead be stockpiling "guns, bullets, tanks, planes, drones, you know, rare earths."
That the world is a dangerous place is not in doubt. A world at war is a different proposition.
A worse case scenario is that tariff wars are just the opening act.
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