Top stories
- A shortened work week but potentially a highly consequential one after the US and Iran agreed a conditional ceasefire.
- News of the ceasefire saw a significant rally in risk assets, with equities and bonds seeing strong moves higher on Wednesday, while the oil price fell sharply, below $100/barrel on expectations that the worst in the conflict is now over. News of a ceasefire signalled the US had stepped back from an escalation that would likely have seen retaliation from Iran, and a prolonging of the conflict, with further negative consequences for the global economy as a result of the disruption to shipping resulting from the de-facto closure of the Strait of Hormuz.
The ceasefire initially appears to be a fragile one given that the US and Israel disagree with Iran on whether the pause in the conflict includes Lebanon; continued strikes on Lebanon saw, Iran respond by stating the Strait of Hormuz was once again ‘closed’, pushing oil prices back towards $100/barrel in trading yesterday.
The next steps will be the direct dialogue this weekend between the US and Iran, hosted by the government of Pakistan in Islamabad. News from these talks will give financial markets guidance on the potential for a longer-term peace deal that would, over time, return shipping navigation through the Strait of Hormuz to a ‘new normal’ which, for financial markets at least, is the most important agenda item up for discussion.
By the numbers
800 – the number of ships said to be waiting to exit the Gulf through the Strait of Hormuz, of which 300 are said to be ready to leave ‘immediately’. Only a handful are known to have transited the Strait since the ceasefire was announced. Around 140 ships a day moved through the Strait before the outbreak of hostilities.
2.5% – Eurozone inflation for March, climbing from 1.9% in February and reflecting the inflationary impulse from the rise in energy prices, thanks to the war in the Gulf. US inflation for March will be published later today and is expected to rise to 3.4%.
$1.2 trillion – the value of M&A during the first quarter, with the Financial Times reporting a record number of ‘megadeals’ – there were 22 deals valued at over $10 billion during the quarter. Q1 2026 was the third consecutive quarter of dealmaking surpassing $1 trillion.
Market movers
- What now for financial markets after the relief rally on the ceasefire news this week? Thanks to the rebound in sentiment, the major indices have recovered much of the losses seen in the weeks since the conflict began, with both the major US and pan-European indices within 3% of all time highs seen earlier in the year, having been down as much as 9% from those highs in recent weeks. With earnings season coming up and hopes raised that the spike in energy prices will now prove to be relatively short lived, there are reasons to remain positive given that economic survey data has softened but not slumped. The earnings outlook should remain supportive. There is still likely to be volatility ahead, as sentiment shifts around ceasefire talks and the risks of hostilities resuming, and we are still likely to see a risk premium built into the oil price for some time to come. All the same, the week is ending on a far more optimistic note than it began.
The investment lens
- A week is a very long time in (geo)politics, and we have gone from President Trump threatening to destroy Iran’s ‘civilisation’ and infrastructure to talk of a new ‘Golden Age’ for the Middle East in the space of just a few days. However, amidst the optimism, we should be mindful that the 10-point plan on which Iran says the ceasefire agreement is based contains what appear to be ‘red lines’ from the US side beyond the cessation of hostilities, including the withdrawal of US forces from the region. The fate of the Strait of Hormuz remains the key driver of market sentiment in terms of easing supply and price stresses around both oil and gas.
While oil futures have eased as traders discount a de-escalation, physical markets remain extremely tight, and supply concerns remain given the apparent very slow opening of the Strait of Hormuz, meaning that while price pressures have eased for now, actual supply issues may well worsen before they improve given the time lags involved in shipping oil to its destination. There remains huge uncertainty over the structure in place for leaving the Gulf in terms of seeking permissions from Iran, payment mechanisms and the Hormuz shipping lanes themselves. Ships are unlikely to enter the Gulf with little certainty over when they will be able to leave again.
The conclusion reflected in the recovery in financial markets is that we are on a path to de-escalation, and that both sides have enough to claim ‘victory’. The closure of the Strait may now begin to fade, but ‘normal service’ will take time to resume and if Iran does charge a ‘toll’ for passage through the Strait, additional shipping costs will impact on supply chains and costs for some time to come.
If the worst of the conflict has now passed, and we are now on a path to a more permanent peace deal, then the impact on the global economy will be contained, but still significant. The spike in inflation means central banks will not be cutting rates in the near term, and of course higher energy prices will likely remain until imbalances in commodity markets and the heightened perception of risk begin to diminish.
- Our base case for some time has been that we would see an end to hostilities sooner rather than later, hence our continued overweight to equities. We remain alert to the news flow from the peace talks but believe that if we are moving towards de-escalation the positive narrative for the outlook economic growth, earnings and ultimately inflation and rates can remain in place.
