Crude calculations

• Brent crude oil, which advanced a further 11.3%
• The US dollar, which rose 1.4% against sterling

• Japanese equities, which led the downward trend for global indices over the week, falling -2.4% in sterling terms
• Gold, which shed -2.9% in dollar terms over the week, despite the risk-off sentiment

As the Iran war enters its third week, equity and bond market moves have been relatively subdued in the circumstances. Since the end of February, the MSCI All Countries World Index – the international equity index – is down only -3.9% and global bond indices about -2%, in sterling terms. That said, equities, government bonds and gold have mostly been moving downward together. 

The energy outlook, however, is very murky. The oil price increased last week when the International Energy Agency (IEA) agreed to release a record 400 million barrels from its reserves. The oil will likely flow to its 32 member states, but possibly not to non-members such as South Korea or India. Russia may be a beneficiary, given the US is relaxing sanctions on buying its oil until 11 April. China has told its main state refiner, Sinopec, to reduce crude inflows by around 10% due to the supply gap. Some countries are placing export restrictions on oil or rationing it, while others are considering reducing fuel duties or easing environmental measures. Energy insecurity is also forcing countries to look again at nuclear: in Japan, 15 years after the Fukushima Daiichi disaster triggered the end of nuclear power; and in Europe, where EC President von der Leyen has stated it was a strategic mistake closing so many nuclear facilities.

Zooming out, the US may be close to meeting its military objectives in Iran. But President Trump may be facing a binary choice: put boots on the ground or accept that the Strait of Hormuz, a critical chokepoint for global energy supplies, remains effectively closed. The stakes remain high.

The UK economy flatlined in January according to preliminary GDP figures from the Office for National Statistics (ONS). It follows growth of just 0.1% reported for both the month of December and the final quarter of 2025, and suggests the economy remained subdued even before the advent of the US-Iran war. Growth for the three months to the end of January was 0.2%. Within the detail of the print, the ONS said that the all-important services sector showed no growth in January. A notable decline in food and drink service activities was highlighted, as the hospitality sector negotiates the often challenging start to the year. 

Evidence of a still lacklustre economy – which will now have to navigate the impact of a global energy price shock – will come as a concern for the Treasury. Chancellor Rachel Reeves was banking on growth rebounding after the subdued final quarter of 2025. But a spike in oil and gas prices has the potential to hit net importers of energy hard. Government borrowing costs and mortgage rates have risen, as the likelihood of interest rate cuts from the Bank of England (BoE) have fallen. The chances of a rate cut at the Bank’s meeting this week have dropped from c.80% to close to zero. Despite the disappointing GDP print, rate setters at the BoE will be more immediately concerned by the inflation risks posed by the conflict. The move in UK gilt yields is far from an isolated one, with sovereign bond prices falling (yields rising) meaningfully elsewhere too. The sudden threat of higher inflation has seen bond and equity markets become more positively correlated on the downside.

The latest US consumer price index (CPI) data suggested prices rose 2.4% over the 12 months to February – matching the annual rate to January and in line with expectations. The latest print illustrates the inflation pressures at play prior to the oil price shock triggered by the Iran war. The data suggests that, while the US inflation backdrop was not worsening ahead of the conflict, it was still holding stubbornly above the Federal Reserve’s (Fed) 2% target. Markets were little changed as a result of the print, with investors focused on the likelihood that headline inflation will be pushed somewhat higher once again in the coming months. 

A separate US Commerce Department report at the end of last week showed that economic growth was somewhat slower than previously thought in the final three months of 2025. US GDP rose at an annual rate of 0.7% in the fourth quarter, a marked downward revision from the initial estimate of 1.4%. The period was marked by a record-long government shutdown. Additional inflation data was also released, with the latest personal consumption expenditures (PCE) price index data published (although to January rather than February). The PCE measure – which is the Fed’s preferred inflation reference – posed a 0.3% gain for January, bringing the annual rate to 2.8%. The Fed will issue its next interest rate decision on Wednesday of this week, with market pricing suggesting a near certain probability of rates remaining in hold. Central Banks have a dual mandate: to keep inflation and unemployment low. Slowing growth and prior evidence of labour market softness would usually increase the chances of a rate cut. But the looming energy price shock makes looser monetary policy unpalatable at this juncture. The situation also raises the risk of stagflation. Although market pricing will likely revert quickly if there is a near-term de-escalation to the conflict in the Middle East.

• Chinese exports – Exports surged +21.8% over the first two months of the year, driven by strong electronics demand. The data far outstripped forecasts and predates the US Supreme Court ruling on trade tariffs. China’s trade surplus will be a major topic of the looming Trump-Xi summit at the end of the month

• US capital requirements – The Fed is set to lower the capital requirements for big banks, according to Fed vice-chair, Michelle Bowman. The current rules were introduced following the financial crisis. Some officials are concerned that excessive capital requirements have reduced lending and seen banks’ market share lost to private credit

• Apple – The US behemoth’s iPhone manufacturing capabilities increased c.53% in India last year, with Apple now producing around 25% of its flagship devices in the country. The move likely reflects efforts to avoid tariffs on China

• Oracle’s revenue – The cloud computing giant reported its third-quarter revenues rose 22%, as demand for its cloud computing services remained strong. Oracle’s share price appreciated over +10% on the day, having previously been down over 25% year-to-date on concerns around the future impact of artificial intelligence (AI) on its products

• Pershing Square – Billionaire hedge fund manager, Bill Ackman, has filed to list his firm, Pershing Square Capital Management, on the New York Stock Exchange (NYSE). A public listing would give retail investors access to Ackerman’s investment vehicle – a focused portfolio of large US companies

• Anthropic lawsuit – AI firm Anthropic filed a lawsuit against the US government after the administration labelled it a “supply chain risk”. The lawsuit is the first of its kind and follows the company’s refusal to remove all usage restrictions from its defence contract with the US government 

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