The Cambridge Weekly- 9th March

Shipping traffic flowing through the Strait of Hormuz, one of the most important oil bottlenecks in the world, has effectively come to a standstill. When operating as normal, the chokepoint typically sees around 20 million barrels of oil pass through it per day – around one fifth of global supply. Despite over 80% of this oil being directed to Asia, global energy prices have surged on the back of uncertainty around future disruption in the region, topping over $100 per barrel on today’s opening. Current forecasts suggest that the conflict could last a month.

Initial market reaction has been risk-off, and consequently global stock markets have tumbled. South Korea’s Kospi Index, last year’s top performer, was hit especially hard last Wednesday, dropping more than 12% and suffering its worst single-day performance on record. The index is dominated by Samsung Electronics and SK Hynix, which together account for roughly 40% of the index. As both companies are heavily reliant on the success of the AI-build out, they were some of the first to be sold as investors rotated their portfolios into more defensive, asset-heavy stocks. In addition to this, South Korea imports most of its energy from the Middle East; higher costs for companies leads to lower margins and earnings, an outlook investors were quick to punish. The South Korean government intervened with a $68bn market stabilisation programme last Thursday.

US Equity Market:
Last week was a turbulent one for US equity markets. Stocks opened last Monday sharply lower; the S&P 500 and Dow Jones Industrial Average both fell almost 2.5% but largely clawed back these losses as the week progressed. Technology stocks were supportive of the broader market, notably names in the chip space, like Broadcom – which posted strong earnings midweek – Micron, AMD and Nvidia. Tesla stock also jumped last Wednesday following an upgrade from Bank of America, positing the company as the market leader in autonomous driving.

Further developments in the Middle East could present complications for this year’s midterm elections, with supply-chain pressures and energy prices already front of mind for many businesses and voters. Nonfarm payroll and unemployment data due on Friday will shed light on whether the labour market had been cooling prior to the conflict.

UK Equity Market:
Over February the FTSE rose 6.7%, significantly outperforming the US based S&P 500 index, which fell 0.9%. The rally over February has been partly driven by mining companies, which have been lifted by the demand for precious metals, as well as strong performance from defence stocks. The index has shown relative resilience in recent days due to its low exposure to growth-oriented tech stocks.

The UK Chancellor’s Spring Statement went largely under the radar last week. There were no surprises, however new forecasts from the Office for Budget Responsibility (OBR) revealed that UK economic growth forecasts for 2026 have been revised to 1.1%, down from the 1.4% forecast in the recent Autumn Budget. Longer-term forecasts, on the other hand, were revised up marginally. Inflation is forecast to reduce to 2.3% over 2026, down from the 3.4% reported in 2025 and only marginally above the Bank of England (BoE) target level of 2%. It should however be noted that these forecasts were compiled before the outset of the conflict in the Middle East.

Inflation, Interest Rates and Bond Markets:
Estimates predict that sustained oil prices at $100 per barrel could add up to 0.7% to global inflation. Given that most major central banks are on a rate-cutting trajectory, this could complicate future monetary policy decisions. More expensive oil and gas tends to stunt economic growth but fuel inflation. This combination presents a complex challenge for central banks; slower growth is mitigated by lowering interest rates, whilst an inflationary environment requires rate hikes to slow economic activity.

Data published last week revealed that UK unemployment rose to 5.2% in the final quarter of 2025, the highest level in a decade excluding the pandemic period. This figure is driven by higher-than-normal youth unemployment, which rose to 16.1%. These data points will be crucial for the next decision by the BoE’s Monetary Policy Committee at the upcoming meeting later this month.

What’s on the horizon
The developments in the Middle East will be the key item on agendas for investors over the coming weeks, with the flow of oil through the Strait of Hormuz being the key focus. Markets are currently pricing in a short, contained conflict as opposed to a broader economic shock, however this is an evolving situation.

A busy week of economic releases lies ahead. China’s CPI inflation figures were released today, and will be followed by Japan’s latest GDP reading tomorrow . These releases give investors a valuable insight into the health of the world’s second and fourth largest economies.

Attention will then turn westward, with German CPI data for February due on Wednesday. The US will also release last month’s CPI data on Wednesday, whilst core PCE – the Federal Reserve’s preferred measure of inflation – and the preliminary estimate of Q4 GDP are due on Friday.

The Cambridge Team

enquiries@cambridgeinvestments.co.uk

Your contact details are securely held within our database either because you have subscribed to The Cambridge Weekly Market Update or your Financial Planner has requested that we send it directly to you. It’s very important to us that any information we send you is relevant and useful.

If anybody wants to be added or removed from the distribution list, please email
enquiries@cambridgeinvestments.co.uk

This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.

Past performance is not a guide to future performance.

The value of your investments can go down as well as up and you may get back less than you originally invested.

Source of financial market data: MorningstarDirect.