This week, economic data took a back seat as investors remained laser‑focused on developments in the Middle East. Markets experienced pronounced volatility, with sharp moves both higher and lower as headlines around the conflict shifted rapidly.
The week began with a risk‑off tone. Equity and bond markets sold off aggressively on Monday morning amid concerns that the US might strike Iranian power plants, risking a renewed escalation. By mid‑morning, UK equities were down around 3%, while the yield on the 10‑year gilt spiked above 5%—its highest point since 2022. Sentiment turned abruptly when a statement from President Trump announced a five‑day US ceasefire and referenced “productive conversations” with Iran. Markets reversed instantly: equities and bonds rallied sharply and oil prices fell. Many investors viewed this as an early indication that progress might be made toward reopening the Strait of Hormuz. However, optimism faded quickly as Iranian officials denied that any such talks had taken place, casting doubt over the credibility of the announcement.
This pattern of tentative progress followed by swift disappointment continued throughout the week. Markets traded on each incremental headline: equities and bonds rallied on signs of de‑escalation, only to sell off when those signals were walked back. Negotiations scheduled for Thursday saw the US present a 15‑point de‑escalation plan, with Iran responding with its own five‑point proposal. After markets closed on Thursday, Trump announced a further 10‑day ceasefire lasting until 6 April. While this initially appeared constructive, markets opened lower on Friday, with equities and bonds selling off and oil prices rising again—suggesting doubts over the durability of the ceasefire or recognition that the US alone cannot determine the trajectory of the conflict.
In the UK, we saw a significant repricing of interest-rate expectations. In mid‑February, markets were pricing better than 50% odds of a Bank of England rate cut in March, along with two cuts during 2026. Those expectations have now been fully priced out. Instead, markets are pricing between two and four rate hikes in 2026. This shift reflects renewed inflation concerns, driven in part by the sharp rise in oil prices, which will feed through into broader goods inflation. These higher rate expectations have weighed heavily on both gilts and UK equities, particularly rate‑sensitive sectors such as consumer stocks, small caps, and REITs. This week’s inflation print showed CPI at 3%, and expectations for a swift move toward the 2% target in Q2 now appear increasingly unlikely.
US equity markets also showed weakness but have been comparatively resilient through March. As a major energy producer with a stock market less exposed to energy input costs, the US has been less affected by the recent oil shock. Earlier in the month, we increased exposure to US equities, funded by reductions in more energy‑sensitive regions such as the UK, Europe, and emerging markets.
Staying in the US, gasoline prices have risen sharply, with the nationwide average reaching $3.98 per gallon—up roughly 33% from a month ago. Analysis from Goldman Sachs suggests that, if sustained, much of the benefit from the tax refunds associated with Trump’s One Big Beautiful Bill could be offset by these higher fuel costs.
Interestingly, despite the rally in oil, precious metals have struggled to find consistent support. Gold and silver have traded more like risk assets this month, closely tracking equity volatility rather than providing their usual safe‑haven characteristics.
Periods of heightened geopolitical stress often cause markets to focus excessively on short‑term newsflow at the expense of fundamentals. While the economic risks associated with higher oil prices are real, the scale of recent market moves is also beginning to create longer‑term opportunities. The sharp sell‑off in gilts and investment‑grade corporate bonds, in particular, is offering investors the chance to lock in yields around 5% over the medium term—levels that have historically been attractive entry points.
Andy Triggs, Head of Investments
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.