Published
30th March 2026
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The Cambridge Weekly
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The war in the Middle East has now entered its fourth week, with knock-on effects rippling through global markets. Oil prices remain highly volatile as investors are trying to price in the uncertainty surrounding the duration of the war and the speed at which disrupted supply routes and infrastructure can be restored.
Even if the Strait of Hormuz were to reopen relatively quickly, analysts expect energy prices to remain elevated for at least the next few quarters. Production in several Gulf states has already slowed or paused altogether as storage capacity has run thin, and resetting these facilities back to normal production levels won’t happen overnight. This, combined with direct damage to infrastructure from missile strikes and explosions, means that global supply is likely to be subdued for a while even after the Strait reopens
Gold, which is typically seen as a ‘safe-haven’ asset, has not behaved as expected in a bear market; the yellow metal is down around 16% from its peak in late January. This weakness reflects several developments: a stronger US dollar has made gold more expensive for foreign buyers, investors have been selling gold to meet margin calls, and some central banks have dumped reserves to prop up their currencies.
US Equity Market:
An OECD report released last Thursday warned that the energy crisis that has unravelled in recent weeks is expected to push US inflation up to approximately 4.2%. The rise in global energy prices will notably increase business costs, which is in turn expected to hamper growth.
Early last week, the major US indices responded positively to comments made by the US administration which pointed towards a potential de-escalation of the conflict. This sparked a brief recovery, with both the S&P 500 and Nasdaq indices up by 1.3% by close last Wednesday. However, fortunes reversed on Thursday as markets sold off around 2% and closed the week to Friday down 2.10% and 3.19% respectively. This leaves the S&P 500 and Nasdaq indices 7.4% and 7.69% below their respective pre-conflict levels.
UK Equity Market:
The OECD has warned that the UK is likely to face the biggest challenge to economic growth in the G20 because of the conflict. The UK is notoriously reliant on energy imports, with around 40% of oil and gas supply coming from overseas. While only a small proportion is imported from the Middle East, the interconnectedness of global energy markets means that supply shocks quickly feed through to the prices paid by UK households and businesses. Forecasts from the organisation suggest weaker-than-expected growth, as well as a rise in inflation to 4%. This further deepens the policy challenge facing both the government and the Bank of England.
Despite shedding c.1.4% in the broad market sell off last Thursday, the FTSE 100 index closed the week to Friday up 0.62%, a much-needed positive week for the index. Despite this small recovery, the index remains 8.6% below its level prior to the conflict. However, due to its strong start to the year, the index performance remains positive yeartodate, unlike both the S&P 500 and Nasdaq indices.
Elsewhere in the UK, London recorded its sixth consecutive monthly fall in house prices in January despite UK house prices overall continuing to rise. Analysts suggest this reflects London’s relative recent success, as well as changes in housing trends post-pandemic.
Inflation, Interest Rates and Bond Markets:
UK government bond yields had a volatile start to last week. Last Monday morning, some traders were betting that the Bank of England would raise interest rates four times this year; a sharp shift from market expectations a month ago when two rate cuts were priced in. Short-term yields fell slightly after comments from the US administration indicated that they were having ‘productive’ conversations with Iran. Currently, traders are pricing in 2 to 3 rate hikes this year, reflecting the ongoing uncertainty around inflation.
The inflation print released last Wednesday revealed that UK inflation held steady at 3% over February. Despite indications that the monetary policy stance of the Bank of England had begun to curb inflation, this data does not yet reflect price pressures from the ongoing conflict in the Middle East. Next month’s print will be a key data point for markets as they develop their inflation and interest rate expectations over the rest of 2026.
What’s on the horizon
Consistent with recent trends, developments in the Middle East will continue to be the key item on the agenda for investors as they continue to evaluate the conflicts impact on global growth as well as inflation and interest rate expectations.
It’s a very busy week ahead for macro data releases with Q4 GDP data in the UK and European inflation data both released on Tuesday. In the US, several crucial data releases are due, including manufacturing purchasing mangers’ index (“PMI”), employment data, services PMI, and crude oil inventories. The latter of these could be particularly interesting given recent global developments.
In Asia, Japan will release its latest consumer price inflation print on Tuesday, while China will publish their manufacturing PMI on Tuesday.
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.
