Market Matters – War Rages on into third week

• Markets are shifting from reacting to headlines toward pricing the duration of the Middle East conflict, as Brent stabilises near $100 and investors increasingly treat the situation as a potential inflation shock rather than a transient geopolitical event.
• Energy remains the dominant transmission channel, with impaired shipping through the Strait of Hormuz and decentralised Iranian capabilities creating persistent supply‑side uncertainty. Markets are now pricing the risk of intermittent instability lasting months, not weeks.
• Bond markets are signalling stagflation risk, with yields rising rather than rallying. The sell‑off in gilts and other sovereigns reflects concern that higher energy costs may delay or reverse expected easing cycles.
• Equity resilience remains uneven: US and China have held up better, while Asia ex‑Japan, EM and Europe have seen deeper drawdowns. Political pressure in the US is building as gasoline prices rise, narrowing policymakers’ tolerance for prolonged disruption.
• Policy inertia is becoming the base case, with central banks constrained by elevated inflation uncertainty. Markets will look to tangible signs of de‑escalation — shipping normalisation, energy stabilisation, credible diplomacy — as the next catalyst for improved sentiment.