HL commentary as it happens

What Spring Statement?

With oil prices dominating global market moves, it was easy to miss Chancellor Rachel Reeves’ Spring Statement yesterday.

Against a troubled backdrop, the Chancellor was keen to celebrate her successes; the independent Office of Budget Responsibility’s progress report that credited the Labour Party as delivering lower borrowing, higher growth economic growth for 2027 and 2028, and lower inflation for the UK. Reeves glossed over the growth downgrade for 2026 – lowered to 1.1% from 1.4%.

On that reasonably positive data set, you’d have expected gilt yields to dip, but markets were listening less to what is happening in the House of Commons and more on the war in the Middle East. Expectations that higher oil prices will flow through to re-inflation have sent yields higher, with the 10-year gilt yield reaching 4.53% in intraday trading. The market slashed expectations for an interest rate cut later this month, and some forecasters adjusted their outlook to just one cut of 25bp through 2026. We think is overly pessimistic but understand investors’ caution.

Troubled stock markets sceptical of Trump’s Hormuz promise

Escalating conflict in the Middle East saw market losses across the globe yesterday – and early trading suggests a mixed picture today.

Oil prices reached just shy of $85 a barrel yesterday as trade through the Strait of Hormuz – through which 20% of global flow moves daily – halted entirely. Gas prices also rose sharply. Iraq announced plans to pause production due to the disruption. Equity and bond markets priced in the impact of a potential supply shock, anticipated to hike energy costs, stoke inflation and force higher interest rate policy. Gold fell 4% as higher Treasury yields offered haven seekers an alternative home.

Europe felt the brunt of investor concern, with Germany’s DAX down 3.44%, France’s CAC 40 falling 3.46% and the FTSE 100 fell 2.75%. The US began trading with similar negativity but markets were granted reprieve in the form of President Donald Trump who pledged insurance guarantees and escorts for tankers using Hormuz. The S&P 500 therefore closed down a more muted 0.94% and NASDAQ index fell just 1.02%. The brent crude oil price fell back to $80 on the news.

Today’s trading in Asia has not picked up the optimistic baton – with markets down across the region. Japan’s Nikkei is down 3.73% at the time of writing, while China’s Shanghai Composite is down 1.29% and Hong Kong’s Hang Seng has fallen 2.78%. South Korea’s KOSPI index is in technical correction territory, down 12%.

Losses are driven by AI-names in a reversal of market trends that have dominated in recent years, and US dollar strength has also weighed.

But futures for Europe suggest a more robust open – the FTSE 100 is currently on track to open flat, and futures for France, Italy and Germany are edging into positive territory. The old-economy nature of the region, a headwind in recent years, is proving a boon. This underlines the importance of portfolio diversification in times of market stress.

What next?

The Strait of Hormuz is the focus of markets. Some Gulf states do have other trade routes available, using Red Sea pipelines, and the US – one of the world’s biggest oil producers – is far removed from the conflict, at least geographically.

A number of oil exporters including Saudi Arabia, and indeed importers such as China, also have reserves outside of the conflict zone which can provide some buffer, but are finite. Renewable energy sources will also help at the margin. But Hormuz resuming usual trade is essential for asset price normalisation.

Some investors are questioning whether this triggers a financial crisis; a toxic combination of asset prices collapsing coupled with recession. Fear is understandable – the events are alarming and upsetting, and from a markets point of view, the VIX volatility index hit 28 yesterday, above the 24 level which piques our interest. But it is important to stress that a prolonged bear market is not our base case scenario. The US military is a global strength, and the President has made it clear restoring global energy supply is a priority.

The downward pressure on stocks is likely to continue until this crucial trade route is made safe. Once secured however, we expect markets to return to optimism – with the volatility we have come to anticipate as the norm under a Trump presidency. The most sensible investment strategy is therefore to sit tight. Well diversified portfolios, with exposure to different asset classes, geographies and styles will be most robust against uncertainty.

Spring Statement: Markets ignore Chancellor as Middle East dominates

The Chancellor was keen to stress the higher growth, lower inflation outlook for the UK in today’s Spring Statement. But markets are listening less to what is happening in the House of Commons and more on the war in the Middle East. Expectations that higher oil prices will flow through to inflation have sent yields higher, and cooled expectations for interest rate cuts. The market is now struggling to price in even a quarter point cut from the Bank of England’s Monetary Policy Committee. We think this is overly pessimistic but understand the caution. As we shared in yesterday’s market report, there are echoes of the 1979 Iranian revolution, which not only caused a significant shift in geopolitics and re-configuration of cross-globe allies and partnerships, but also resulted in an oil crisis which saw the price of crude double over the course of a year, higher global inflation and slower economic growth. It will be this stagflation risk that equity and bond markets are most sensitive to, but the dynamics of the oil market have evolved significantly over the past 45 years. Crucially, while oil prices may be higher now, consensus is that this disruption is transitory – and so too will the impact be on wider asset classes. In the event of an effective transition of power – and end to the fighting – oil prices are expected to return to $65 a barrel within weeks, and therefore the likelihood of a global growth shock is minimal.

What should investors do?

The most sensible thing for most investors to do this morning, is nothing. Heightened market volatility was a feature of 2025, and our house view was that unpredictable markets were likely to continue this year. In our 2026 outlook we called out ongoing tension in the Middle East, the Russia-Ukraine war and the US Mid Term elections as potential inflection points for asset prices. The events of the weekend are deeply troubling from a humanitarian point of view, and present global leaders with difficult choices to make. But they are sadly not isolated incidents – global markets continue to trade through wars, pandemics and natural disasters.

Investors should therefore be mindful of valuations and volatility, and the temptation to try and time trades. However, those looking for investment ideas as we approach tax year end should remember that a well-diversified and tactical investment approach is increasingly important. We think that fixed income funds and emerging markets offer opportunities as does the much-beleaguered quality-style of investing, which has been overlooked and undervalued.

Quality stocks, listed globally, but with stable and predictable cashflows and little to no debt, have characteristics which should do well regardless of economic backdrop – needed in a time of uncertainty. As well as a diversified portfolio, investors should also arm themselves with a long-term view, and keep focus on their goals, rather than daily market movements.

Broader market reaction

The US dollar has rallied – a reflection of both the nation’s military dominance and oil independence as well as a confirmation of its position as a low-risk and dependable asset in times of global uncertainty. As we called out in our 2026 outlook, the world’s reserve currency has waned in popularity over the past year as gold has seemed to surpass it as investors’ preferred store of wealth. Global central banks have increasingly favoured gold over the US dollar. Rival nations will have observed the threat of Russia having its USD assets seized by global players supportive of Ukraine and subsequently considered the metal a more attractive neutral reserve. Others may simply want to diversify away their dependence on the dollar and President Trump’s erratic approach to both domestic and foreign policy. Whether this is a sustained uplift will depend on the outlook for US spending – similarly to the bond market.

Bond market reaction is expected to be positive today, particularly for highest rated lowest risk government bonds with lots of liquidity – such as the US and UK – which should see yields fall as demand increases. That said, for the US in particular, yields may become less predictable as time goes on. While it is not the base case, should this war become protracted, and there is a requirement for increased military spending and an increased risk of inflation, expect prices to flip and yields to rise and the dollar to weaken.

Gold has also rallied 1.9%, hitting above $5,400 in earlier trading, cementing its position as the uncertainty trade and inflation hedge. This is still off the all-time high of $5,589 but comes off the back of a near 20% rally year to date. While at these elevated prices investors should be wary of piling in, we do think the perceived safe haven appeal of gold in times of uncertainty remains and gold has an important role to play in portfolios this year.

Global markets react to escalation in Middle East

Events in the Middle East over the weekend – the US-Israel strikes on Iran, and subsequent retaliations across the region – have added uncertainty, and volatility, to an already choppy market. Global equities, buffeted by AI disruption fears and ever-changing tariff policy over recent months, are now digesting the likelihood of significantly higher oil prices, supply chain concerns, and the potential for subsequent higher inflation.

Investors have reacted by turning ‘risk-off’, buying in to the perceived safe havens of gold, the US dollar and the Swiss franc. Initial equity market reaction was mixed. Middle Eastern markets trading yesterday fell – but only by 2-4% as key oil producers listed in the region provided a counter to wider losses. Today, Asian equity markets have fallen 1.6%, with European and US futures down. Europe markets indicate an open of down 1.7% and S&P 500 futures are 1% down. Investors globally are broadly selling equities to fund the risk-off pivot, but the energy sector looks set to gain. US treasury bonds and UK gilts are also expected to benefit.

Oil prices have unsurprisingly rallied, up as much as 13% through Asian trading. Brent crude opened the week at $82 – up $10 on Friday’s price. Iran is only responsible for around 5% of global oil supply, but the UAE, which has come under retaliatory fire because of its US military bases, is the fifth largest global exporter. Further pressures were added yesterday afternoon as Iran targeted the Strait of Hormuz, a narrow pass between Oman and Iran through which ships carrying around a fifth of the world’s oil and gas pass daily. In response, tankers halted movement to protect their cargo and have yet to resume normal activity.

There are echoes of the 1979 Iranian revolution, which not only caused a significant shift in geopolitics and re-configuration of international allies and trade partners, but also resulted in an oil crisis which saw the price of crude double over the course of a year, causing higher global inflation and slower economic growth. The dynamics of oil and gas trade have evolved since then, but it will be this longer-term stagflation risk that equity and bond markets are most worried about.

There are a number of factors which will determine the economic impact of elevated oil prices on a country-by-country basis. The first is the amount of reserves nations have accrued before this disruption. China is the world’s largest importer of oil so any move in the oil price has a read-through to economic growth. However, the regime is hyperaware of its dependency on producer nations and has subsequently built up significant stores which will provide some buffer to the current disruption, protecting the nation from potential inflation shocks in the short term. The world’s number one oil exporter, Saudi Arabia, also upped its stores outside of the Gulf in recent weeks.

The second factor is supply dependency. Russia invading Ukraine brought the benefits of energy autonomy into focus – and nations such as the US have ramped up production in recent years to become the second largest oil exporter in the world. At the time of the last Iranian oil crisis, the US was a net importer of oil. Europe and Japan are most sensitive today, relying on the Middle East for their energy. Major oil producer Russia is subject to sanctions from many western economies, but China and India are still buying.

Finally supply routes are key – the Hormuz Strait may be on pause, but the Red Sea oil pipelines in Saudi and Egypt avoid both Hormuz and the Suez Canal, ability for producers to use these routes is key to minimising global impact.

Crucially, while oil prices may be higher now, consensus is that this disruption is transitory – and so too will the impact be on wider asset classes. In the event of an effective transition of power – and end to the fighting – oil prices are expected to return to $65 a barrel within weeks, and therefore the likelihood of a global growth shock is minimal. However, if in-fighting erupts and conflict drags on expect equity markets to respond badly.