Its getting Uglier as Houthis join War : US Troops arrive in Persian Gulf

• Market stress has broadened materially with global equities entering correction territory and bonds failing to diversify as yields rose alongside falling risk assets. The sell‑off now reflects investors pricing the consequences of the conflict rather than just the headlines.
• The conflict has become more complex and regionally embedded, with Houthi involvement, continued strikes, and additional US troop deployments. Disruption around the Strait of Hormuz persists, and alternative routes such as Saudi Arabia’s East‑West pipeline remain only partial mitigants.
• Scenario probabilities have shifted toward escalation, with a reduced likelihood of a clean resolution. The base case remains a prolonged standoff (40%), but risks of broader military escalation (30%) and severe energy‑infrastructure disruption (10%) have risen. Markets are adjusting to this more uncertain distribution of outcomes.

• Macro conditions are deteriorating across major economies, with oil above $110 sustaining inflation while simultaneously weakening growth. The US faces a late‑cycle stress test; the UK is already seeing demand softness and rising mortgage rates; Europe is the most exposed to stagflation; and China remains insulated on CPI but vulnerable through margins and exports.

• Traditional defensive assets have struggled, with bonds selling off and gold initially pressured by rising real yields. While safe havens may reassert themselves if the conflict escalates, markets are currently caught between inflationary pressure and weakening growth. Despite this, much of the repricing has already occurred, and markets are closer to the bottom of the adjustment phase provided the conflict does not materially worsen.