The week that was …
Economic round-up
Trump seeks to protect Strait of Hormuz
Donald Trump said “many countries” would send warships to keep the crucial Strait of Hormuz open. The US president added he hoped China, France, Japan, South Korea, the UK and others would send ships to the area. “In the meantime, the United States will be bombing the hell out of the shoreline and continually shooting Iranian Boats and Ships out of the water,” he wrote on Truth Social. Read more from Reuters here
UK GDP flat in January
The UK economy showed no growth in January, following weakness in the dominant services sector. Economists had forecast a 0.2% expansion but the services sector failed to grow over the month, according to ONS data, while production contracted 0.1%. Read more from the FT here
US Q4 GDP estimate scaled back
The US economy expanded significantly more slowly in the final three months of 2025 than originally stated, according to the second estimate of GDP growth. It showed GDP growing at an inflation-adjusted annual rate of 0.7% in the fourth quarter, half the bureau’s preliminary estimate of 1.4%. Read more from Investopedia here
US inflation stable – for now
US inflation was stable in February although the data does not yet reflect the shock to energy prices triggered by the conflict in Iran. Consumer prices rose 2.4% over the 12 months to February – in line with the previous month. Read more from the BBC here
US consumer spending up …
The latest reading of the US Personal Consumption Expenditures index showed consumer spending increased solidly in January despite higher prices. Combined with the impact of the Middle East conflict, this makes it more likely the Federal Reserve will not resume cutting interest rates before September. Read more from Reuters here
… but sentiment dips on Iran crisis
US consumer sentiment dipped in March as the war in the Middle East led to higher gasoline prices. The University of Michigan’s Consumer Sentiment index fell to 55.5 in March – from a final reading of 56.6 in February. Economists polled by Reuters had forecast the index falling to 55.0. Read more from Reuters here
US launches trade investigation
In a move widely seen as a precursor to more tariffs, the US has announced a new trade investigation into 60 countries, including Canada, China and the UK as well as the European Union. US Trade Representative Jamieson Greer said the investigation would look at whether countries have hurt US businesses by failing to block sales of goods made with “forced labour”. Read more from the BBC here
China inflation jumps in February
China’s consumer inflation saw its biggest increase in more than three years in February as the country’s Consumer Prices Index rose 1.3% – ahead of economists’ forecasts of a 0.8% rise. The Producer Price index meanwhile dropped 0.9% from a year ago, ahead of expectations of a 1.2% fall. Read more from CNBC here
Markets round-up
Investors slash bets on US rate cuts
Investors are removing bets that the Federal Reserve will cut US interest rates this year, as the crisis in the Middle East threatens to revive inflation. Rather than the previously-expected two quarter-point cuts in 2026, markets are now not anticipating a Fed rate cut until summer next year, according to trading in federal funds futures. Read more from the FT here
Another ‘down’ week for US stocks
US stockmarkets declined for a third straight week as ongoing conflict in the Middle East hit sentiment. Oil prices remained volatile as investors weighed the risk of prolonged supply disruptions through the Strait of Hormuz. Markets were also nervous about potential knock-on effects from problems in the private credit market. Read more from T Rowe Price here
Asia-Pacific shares hit by Middle East conflict
Asia-Pacific markets tumbled on renewed fears the crisis in the Middle East could be prolonged. Traders on prediction market Kalshi raised bets on a recession for the US economy in 2026. Read more from CNBC here
IEA pronounces on oil market turmoil
Global oil markets are suffering “the largest supply disruption in history”, according to the International Energy Agency (IEA), with production dropping to its lowest level in four years. Gulf producers had cut oil production by at least 10 million barrels a day because the Strait of Hormuz was almost impassable to shipping, it said. Read more from the FT here
Oil prices continue to climb after emergency release
Oil prices have surged more than 17% since the IEA announced the largest release of crude stockpiles in its 50-year history. Brent crude continued to touch $100 a barrel. The emergency stockpiles will take time to roll out. Read more from CNBC here
“The UK bond market has a natural fragility – like Blanche DuBois, it is reliant on the kindness of strangers.
Selected equity and bond markets: 06/03/26 to 13/03/26
| Market | 06/03/26 (Close) |
13/03/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5520 | 5496 | -0.4% |
| S&P500 | 6740 | 6632 | -1.6% |
| MSCI World | 4458 | 4330 | -2.8% |
| CNBC Magnificent Seven | 393 | 386 | -1.8% |
| US 10-year treasury (yield) | 4.13% | 4.28% | |
| UK 10-year gilt (yield) | 4.57% | 4.71% |
Investment round-up
M&G returns to inflow territory
M&G returned to positive inflows in 2025, but pre-tax profits remained largely unchanged. The asset manager reported net flows of £7.8bn in 2025 – a turnaround from the £1.9bn of outflows it saw in 2024.
Odey hearing continues
The Financial Conduct Authority said fund manager Crispin Odey demonstrated “disregard” and “disrespect” to the executive committee of Odey Asset Management by not abiding by the final warning notice issued against him. Odey is challenging the regulator’s ban and £1.8m fine.
L&G enjoys private markets boost
Legal & General (L&G) has announced its largest-ever share buyback of £1.2bn, as its booming private markets division contributed to growth. High-net-worth and institutional demand drove private markets assets under management up 32% to £75bn over the year.
Zennor AM appoints CEO
Investment boutique Zennor Asset Management has appointed Tatjana Evans-MacLeod as CEO. Evans-MacLeod, who joins from Baillie Gifford, where she was a senior executive, started her career with J.P. Morgan in New York, before moving to Morgan Stanley in a capital markets role and later to Credit Suisse First Boston.
EWIT issues tender offer
The board of Edinburgh Worldwide has issued a 100% tender offer in an attempt to end the protracted dispute with activist investor Saba Capital Management. The tender offer can pass without needing Saba’s support.
Saba launches investment trust ETF
For its part, Saba Capital Management has launched an ETF, enabling investors to buy into its activist investment trust strategy. In partnership with HANetf, the Saba Capital Investment Trusts UCITS ETF launched on 5 March.
Commodities duo leave CQS
Keith Watson and Robert Crayfourd have resigned from Manulife CQS, and relinquished management of three investment trusts – CQS Natural Resources Growth and Income, Geiger Counter and Golden Prospect Precious Metals.
… and the week that will be
Bond markets wait on key rate decisions …
Interest rate decisions from the Bank of England, US Federal Reserve, European Central Bank and Bank of Japan are all due this week. The current situation is likely to prove too uncertain for any of them to consider a cut – but markets may be relieved if there are no increases. Read more from CNBC here
… but oil price remains paramount
That said, there is really only one metric that matters to markets at present – the oil price. Investors will be watching developments in the Strait of Hormuz – and particularly whether anyone will answer Donald Trump’s requests for help to unblock it. US strikes over the weekend on Kharg Island raised oil-supply concerns. Read more from Reuters here
The week in numbers
UK rate decision: Consensus expectations are for no change in UK interest rates from 3.75%, although concerns about higher inflation may cause some members of the Bank of England’s Monetary Policy Committee to change their views.
US rate decision: Consensus expectations are for no change in US interest rates from the current 3.5%-3.75% range, although the recent surge in energy prices is likely to produce discussion at the Federal Reserve on the outlook for rates.
Euro rate decision: Consensus is that interest rates will be held – at 2.15% – but a discussion on higher inflation at the European Central Bank meeting would again appear probable.
Japan rate decision: Consensus forecasts have the Bank of Japan holding interest rates at 0.75%.
UK jobs data: Consensus expectations are for the UK unemployment rate to hold steady at 5.2% and for average earnings to rise 4.2%.
US inflation: Consensus expectations are that US producer prices, as measured by the producer price index, will be up 0.3% month-on-month in February, compared with 0.5% the month before.
China industrial data: Industrial production in China from January to February is expected to be up 5% year-on-year, down from 5.2% in the previous period.
In focus: Gilts go haywire
Pushed at the start of the year to pick assets highly correlated to the oil price, few investors would have had UK government bonds top of their list – and yet, in the fallout from the US/Israeli attacks on Iran, UK gilt yields have spiked alarmingly. At close of play on Friday, for example, the UK two-year government bond yield was 27 basis points (bps) higher than it was three days earlier and 55bps higher than it was a month ago.
This is out of sync with other major bond markets. The yield on the US two-year treasury was up 18bps over last week, while the German two-year bond yield was up 22bps. For its part, the French two-year bond yield has been among the more stable over the week, rising just 14bps. Clearly the UK is a notable outlier.
There are a number of reasons behind the weakness – not least that the UK bond market has a natural fragility. Like Blanche DuBois, it is reliant on the kindness of strangers – in the third quarter of 2025, for example, one-third of the UK gilt market was held by overseas investors.
Back in 2023, Richard Hughes, then chair of the Office for Budget Responsibility, warned a lack of information on the identity of those overseas holders made it difficult to predict their behaviour. It would indeed appear that some of those investors can be flighty.
As Bryn Jones, head of fixed income at Rathbones, observes: “Bank of England governor Andrew Bailey has previously raised concerns about the ease with which CTA and hedge fund strategies can short the gilt market, which can amplify sell-offs during periods of market stress.”
Market participants suggest a number of hedge funds had highly leveraged bets on a Bank of England rate cut in March, which needed to be rapidly unwound in the face of higher oil prices. Completing their about-face, they may now be going short on UK bonds, which has exacerbated volatility.
I do not think this is a fiscal crisis or a repeat of the Truss episode. This is an inflation-repricing story.”
Then there is the UK economy. “The UK is especially sensitive to higher energy prices, so a Middle East-driven energy shock feeds much more quickly into inflation concerns here than in the US, for example,” says Craig Veysey, head of fixed income at Guinness Global Investors.
“UK CPI inflation is still running at 3% year-on-year – already above-target – so when gas prices surge, the market immediately starts to question how much room the Bank of England really has to cut rates. Around 50 basis points of cuts that were priced at the end of February have effectively been stripped out.”
This may feel a little unfair. After all, it remains plausible the Bank of England will choose to look through a short-term rise in the oil price, reasoning higher interest rates may do little to deal with inflation generated by global oil prices but could tank an already feeble UK economy.
That said, gilts had already seen a significant rally in the wake of the November Budget. This may have been a relief rally, of course, but Veysey argues the market had become quite complacent about inflation – a sentiment that has now been abruptly reversed.
“I do not think this is a fiscal crisis or a repeat of the Truss episode,” he continues. “This is an inflation-repricing story. Safe havens do not work in the usual way when bonds have already rallied hard, yields are near their lows and markets suddenly have to worry about inflation again.”
There are significant impacts here for the broader UK economy. Banks have withdrawn almost 500 mortgage deals in the past week alone. The most recent set of GDP figures shows economic growth already anaemic, with no growth seen in January. This weakness was in spite of some promising purchasing-manager index data and improving retail sales figures.
The situation has proved fluid, with gilt yields responding quickly – in both directions – on new pieces of information about the war.”
Do fund managers believe gilt yields can come down any time soon? The repricing may have gone too far, believes Jones, explaining: “We had expected a rise in yields, but the moves have been aggressive.
“Taking futures from two rate cuts to one rate hike in the space of a week is exceptional behaviour from a G7 government bond market – but then there have been exceptional events going on in the Middle East. And then to see that rate hike disappear in the next few hours, back to ‘no change’ in rates – that’s a lot of volatility.”
Jones believes the long end of the market does now look attractive, arguing issuance has collapsed and quantitative tightening is being significantly reduced for longer-dated gilts. “Clearly, we have seen significant technical moves, going from ‘overbought’ to ‘oversold’ on relative strength indicators very quickly,” he adds.
Guinness’s Veysey also believes the crisis presents opportunities. “At these levels, I do think gilt yields are becoming attractive again,” he says. “There is clearly a risk energy prices stay higher for longer if the conflict drags on, and central banks are far too early in the process to react. But if yields move further out of proportion to the underlying UK economic data and/or energy prices begin to stabilise, my bias would be to be a buyer of gilts.”
Major investors such as Pimco have also come out in favour of UK bonds. The asset manager told the Financial Times it was sticking to its positive view on gilts and did not think the Bank of England would do anything in the next few months until the situation was clearer.
Even so, the market is currently pricing in an 82% probability of a Bank of England rate hike this year. That looks overdone, though. The situation has proved fluid, with gilt yields responding quickly – in both directions – on new pieces of information about the war. This suggests a market that can be easily swayed.
Nevertheless, the conflict in the Middle East has exposed some significant structural problems with the UK economy: the level of debt, the way it is structured, the lack of liquidity – plus the UK’s dependence on fossil fuels, its high energy costs and its lack of growth. The country would appear uniquely vulnerable to shocks. Even if gilts recover, it may be luck rather than judgment that sees the UK through this particular crisis.
In focus: Holding pattern
It may have been a turbulent few weeks for global stockmarkets but they have yet to reflect a serious shock to the global economy. The S&P 500, for example, is down 3% for the month and 2.9% for the year to date – uncomfortable, for sure, but effectively a rounding error given the strength of US equities over the past three years.
“Stock indices are below where they were a week ago but, compared with the dramatic escalation in the US and Israel’s war on Iran, markets still look sanguine,” says Lothar Mentel, CIO at Tatton Asset Management. “Investors have flocked more toward largecap tech stocks – reversing the cyclical rotation into smallcap stocks we have seen so far this year. You could perhaps interpret that as a move into ‘safe haven’ quality stocks.”
This is an abrupt change in view from the start of the year, when investors were growing very twitchy about the sustainability of the AI trade. It is also at odds with the sharp increase in long-term government bond yields across the world.
“Higher ‘risk-free’ government bond yields should make risk assets such as equities less attractive by comparison, but there was no big fall in stock prices,” adds Mentel. “That effectively means the bond-adjusted equity risk premium has gone down – in other words, remarkably, investors see stocks as less risky, compared with bonds, than a week ago.”
That does look complacent. It also suggests that long-term, high growth assets such as the US technology sector should be the worst performers rather than the best. This is aside from the reality that higher bond yields act as a de facto interest rate rise, which should upset equity markets – not to mention the fact an actual rate rise has become a far higher possibility than it appeared only a week ago.
The shift from the “diversification trade”, which had seen investors start to look beyond the US is perhaps more rational. “The conflict is upending recent trends and well-established relationships in global markets,” notes the BlackRock Investment Institute.
“International equities had walloped US stocks until the US-Israeli strikes on Iran, driven largely by AI-related disruption fears in industries the US is exposed to. That leadership has reversed abruptly: equity markets in regions most dependent on energy imports have sagged sharply whereas the MSCI US index has been steady.”
Undoubtedly, other countries are more vulnerable than the US. Markets are now in a holding pattern – unsure if the war will end as quickly as it started, or whether it will become a prolonged conflict. Either way, another lurch down is more than possible.
