Market Matters – Investors start factoring in the consequences of a drawn out conflict

• Markets now see the conflict as a longer‑lasting economic shock, with the closure of the Strait of Hormuz and oil above $110 pushing investors to rethink inflation and interest‑rate paths.

• Recent market moves show adjustment, not stress, with equities drifting lower, bond yields rising, and credit markets staying stable as expectations for near‑term rate cuts fade.

• Central banks are becoming more cautious, especially the Fed, which signalled that higher energy costs could slow progress on inflation and keep policy tighter for longer.

• Regional differences are widening: the US economy is still resilient but politically exposed to high fuel prices; the UK faces weak growth and sticky inflation; Europe is caught between soft demand and high energy sensitivity.

• Markets still expect an eventual stabilisation, but the timeline is uncertain. Any improvement in energy flows could spark a strong rebound, while escalation remains the main risk.