The week that was …
Economic round-up
UK rates held as BoE warns on inflation
The Bank of England’s Monetary Policy Committee voted unanimously last week to hold UK interest rates at 3.75% while warning the Middle East conflict could push inflation as high as 3.5% this summer. Bank governor Andrew Bailey also cautioned against predicting rate rises, saying the situation was too uncertain to reach any strong conclusions. Read more in ‘In focus’ and from the BBC here
Fed keeps US rates on hold
As had been widely expected, the Federal Reserve kept US interest rates on hold at 3.75% last week. The central bank’s Federal Open Market Committee said “the implications of developments in the Middle East for the US economy are uncertain”, but signalled they still expected to make one quarter-point cut before the close of 2026. Read more from the FT here
ECB highlights energy prices in ‘hold’ decision
The European Central Bank said soaring energy prices would have a “material impact” on inflation in the short term, as it voted to keep interest rates on hold for the sixth consecutive meeting. The bank now expects inflation in the Eurozone will shoot up to 2.6% this year, compared with a previous estimate in December of 1.9%. Read more from the FT here
BoJ pauses rate-normalisation process
The Bank of Japan has kept interest rates on hold, pausing any plans to raise rates as part of its interest rate normalisation process. The central bank warned that Japan’s economy could be “dragged down” by further increases in the price of oil and deteriorating terms of trade from the conflict in Iran. Read more from the FT here
UK wage growth slows
Wage growth slowed sharply in the UK over the three months to January, according to the Office for National Statistics, although it remained ahead of inflation. Average earnings growth fell to 3.8% over the same period – down from 4.2% – while the unemployment rate was unchanged at 5.2%. Read more from the Guardian here
Food and energy prices push up US inflation
The US Producer Price Index (PPI) increased by a seasonally adjusted 0.7% in February, with core PPI inflation up 0.5%. On a 12-month basis, PPI inflation was at 3.4% – its highest level since February 2025. Food prices rose 2.4% while energy was up 2.3%. Read more from CNBC here
China industrial production beats expectations
China’s industrial output grew at 6.3% in January/February – ahead of expectations and an acceleration from the 5.2% pace in December. Consensus among economists had been for a 5% increase. Retail sales rose 2.8% in the first two months of the year. Read more from Reuters here
Markets round-up
UK borrowing costs soar …
The UK government’s borrowing costs jumped to their highest level since 2008 on Friday, as traders priced in rate rises in response to an inflation shock. 10-year gilt yields tipped over 5%, deepening a three-week long rout in bond markets. Read more in ‘In focus’ and from the FT here
… and global bond yields spike
Government bond yields in the US and Europe spiked on Friday as investors became increasingly concerned about the inflationary impact of the Iran crisis. Bond markets have moved sharply from pricing in interest rate cuts to pricing in interest rate rises. Read more from Reuters here
US lifts Iranian oil sanctions
The US has lifted sanctions on some Iranian oil, as oil prices held firm at above $110 (£83) a barrel. This represents a rise of more than 50% over the past year. Gas prices have almost doubled in the UK. The US is scrambling to contain the impact on energy markets of its war in Iran. Read more from the BBC here
Investors turn to money market funds
Assets in money market funds have spiked to around $8tn, according to calculations from providers including the Investment Company Institute, JPMorgan Chase and Crane Data. These sources are in agreement that assets have hit a record high amid the Iran conflict. Read more from Reuters here
US stocks lead global markets downwards
Stockmarkets fell in volatile trading on Friday as oil prices continued to rise. The Dow Jones Industrial average shed 443.96 points, or 0.96%, ending at 45,577.47, while the S&P 500 fell 1.51% and closed at 6,506.48. Read more from CNBC here
“In the longer run, the US-Israel-Iran conflict may be part of a broader recalibration of the relative risks of emerging markets versus their developed counterparts.
Selected equity and bond markets: 13/03/26 to 20/03/26
| Market | 13/03/26 (Close) |
20/03/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5496 | 5312 | -3.3% |
| S&P500 | 6632 | 6506 | -1.9% |
| MSCI World | 4330 | 4244 | -2.0% |
| CNBC Magnificent Seven | 386 | 375 | -2.7% |
| US 10-year treasury (yield) | 4.28% | 4.39% | |
| UK 10-year gilt (yield) | 4.71% | 4.94% |
Investment round-up
Victory Capital improves bid for Janus Henderson
Texan financial services firm Victory Capital has submitted an improved offer for Janus Henderson. The group had its first approach rejected, despite it representing a 16% premium to a competing offer from Trian.
McDonald to join SJP
Former Aegon UK head of portfolio management Anthony McDonald has joined St James’s Place’s multi-asset team. McDonald had been at Aegon for more than seven years, initially as a senior investment manager before taking on the role of head in February 2023.
WisdomTree buys Atlantic House
WisdomTree is to buy investment manager Atlantic House Holdings in a deal valued at £150m. Atlantic House manages around £4.1bn in assets. Bordier UK appoints research head Bordier UK has named Jason Day as its head of fund research. Day, who joins from Aberdeen where he was a senior investment manager, played a key role in the development of the group’s risk-targeted model portfolios.
Quilter offers JPMAM-run long/short equity fund
Quilter has launched a long-short equity fund, with J.P. Morgan Asset Management managing the mandate. The strategy aims to deliver consistent returns using an equity long-short approach and will focus on companies involved, directly or indirectly, in consumer or consumer-related activity.
Miller joins Trinity Bridge
TrinityBridge has appointed Tom Miller as head of bespoke investment management. The group described it as an “exciting next step”, as it moved to solidify its bespoke offering with “greater focus and precision”.
Impax board backs tender offer
The board of Impax Environmental Markets has urged investors to back a full exit tender offer. The move is likely to escalate the group’s ongoing dispute with its largest shareholder, Saba, after months of failed negotiations over the trust’s future.
Investors optimistic on UK – before Iran conflict bit
Prior to the crisis in Iran, global investors had started to show increased optimism about UK equities and earnings expectations, alongside a growing appetite for IPO participation, according to Berenberg’s inaugural Investor Barometer. It showed almost two-fifths (38%) of global investors were expecting to increase their UK equities exposure over the next 12 months.
… and the week that will be
The Middle East crisis
With a fresh set of threats made by president Trump over the Strait of Hormuz, markets are likely to remain preoccupied with the impact of higher energy costs on inflation and economic growth. The US Federal Reserve is still forecasting a single rate cut this year but the outlook remains highly uncertain. Read more from Reuters here
Iran impact on economic data
The fallout from the Iran conflict is set to start filtering through to economic data this week. Tuesday sees flash purchasing managers’ index (PMI) data, which is likely to show a dent to business confidence. Rising uncertainty is also set to be a factor in Thursday’s OECD interim economic outlook report, as well as consumer confidence reports from the EU, Germany and the UK. Read more from the FT here
The week in numbers
UK inflation: Consensus forecasts have consumer price index (CPI) inflation falling to 2.8% year-on-year in February, from 3% in January, and rising to 0.3% month-on-month, from -0.5%. Core CPI is expected to be 2.9% year-on-year – down from 3.1%.
UK retail sales: Consensus expectations are that UK retail sales in February will be up 0.1% month-on-month, down on the 1.8% rise seen in January.
UK business sentiment: Consensus expectations are that the flash March print of the UK manufacturing PMI will fall to 51.1, from 51.7 in February, with the services equivalent weakening to 51.8 from 53.9.
US business sentiment: Consensus expectations have the flash March print of the US manufacturing PMI falling to 50.2, from 51.6 in February, and the services equivalent falling to 50.4 from 51.7.
Japan inflation: Japan prices are expected to have risen 1.3% year-on-year over February.
In focus: Emerging problem
And it had all – at long last – been going so well for emerging markets. Buoyed by a weaker dollar, improving corporate earnings and a reappraisal of China by investors, the world’s emerging economies had been enjoying one of their strongest runs of performance in recent history. The US/Israeli attacks on Iran have, however, brought that welcome run of strength to an abrupt halt.
The asset class is vulnerable for a number of reasons – the first being that many emerging markets are oil importers and source much of their supply from the Gulf states. According to shipping analytics group Kpler, Asia imported 14.74 million barrels per day of Middle Eastern crude in 2025. More than 80% of crude oil passing through the Strait of Hormuz in 2024 was destined for Asian markets.
China remains the world’s biggest crude oil importer, taking around 5.4m barrels a day from the Middle East. While increasing its share of renewables – spending around three times the amount on renewable development as the US or Europe – China had also built up significant oil reserves.
Despite this preparation, however, the country remains vulnerable to a prolonged rise in fossil fuel prices. For its part, India has made less progress on renewables and is a significant oil importer – particularly from the Gulf. Its stockmarket has seen the biggest falls over the last month.
According to Michael Langham, emerging markets economist at Aberdeen, emerging markets are also being hit by ‘risk off’ sentiment in markets “Incentives to draw the US-Israel-Iran conflict to a close within weeks rather than months remain, but a more protracted conflict could shock the global economy via energy prices, putting pressure on emerging markets via risk-off dynamics,” he explains.
“Prior to the Iranian conflict, investor sentiment towards emerging markets had turned increasingly positive as emerging market fundamentals improved. Most recently, the striking down of IEEPA [the US’s International Emergency Economic Powers Act] has opened the door to lower tariffs. The accelerating global AI capex cycle is a structural tailwind for global trade and high-tech Asian manufacturing.”
As sentiment has turned more cautious, investors have reduced exposure to recent winners such as Korea, Taiwan and goldminers.”
A further problem for emerging markets is that the crisis has prompted a strengthening in the greenback. The improvement in sentiment towards emerging markets had largely coincided with a weaker dollar and the prospect of lower interest rates in the US. Higher energy prices make it more difficult for the Federal Reserve to cut rates, which in turn makes it more difficult for emerging market central banks to cut their borrowing costs.
Finally, there has been some profit-taking. Emerging markets had done very well and are therefore a potential source of funds for investors who want to reduce risk. “In our view, these moves appear largely rational,” says Nick Price, manager of Fidelity Emerging Markets. “As sentiment has turned more cautious, investors have reduced exposure to recent winners such as Korea, Taiwan and goldminers.”
It is not unremitting gloom, though, with Anthony Kettle, senior portfolio manager at RBC BlueBay, arguing certain emerging markets should prove more resilient. “Take, for example, those that will see improving fiscal or current account dynamics as a result of higher oil prices, or those that may show more resilience to the inflationary impact of higher oil,” he says.
“That naturally pushes us toward commodity and energy exporters and away from net importers with large funding needs. In general, an energy shock will be inflationary – albeit to different extents – for energy importers and exporters alike, but the growth impact can be a point of differentiation with certain oil exporters benefitting and, in many cases, also seeing material improvements to their current accounts.”
The wrinkle here is that these beneficiary economies are generally not the largest part of the emerging market indices. The four largest countries in the MSCI Emerging Market index, for example, are China, Taiwan, South Korea and India – between them account for almost 80% of the benchmark’s market capitalisation – and all are reliant on oil imports for their energy needs.
Emerging markets investors will need to decide the extent to which the current conflict will have an adverse impact on individual businesses.”
If the conflict is relatively short-lived and the oil price normalises within weeks, emerging markets could recover fairly quickly – but Price observes: “In the case of more prolonged tensions, any significant disruption to the Strait of Hormuz could drive up oil prices over the longer term, driving risk-off sentiment and adding to inflationary pressures globally.
“The impact of heightened inflationary pressures would likely be felt most acutely in emerging market countries with lower per-capita incomes, where energy represents a larger share of household expenditure.”
Then again, there had been some froth in certain areas of the emerging markets asset class – particularly evident in AI-related stocks in markets such as Korea and Taiwan. Even with the recent sell-off, for example, Korea’s Kospi index is still up well over 100% in one year. “The pullback might even be viewed as a healthy reset,” suggests Price. “Indeed, we continue to see selective opportunities in Korea – particularly in the technology sector.”
This will be key – emerging markets investors will need to decide the extent to which the current conflict will have an adverse impact on individual businesses. In the case of technology hardware companies supplying the AI roll-out across the world, the impact of high oil prices may be less evident. In India, however, where share prices were already expensive and there are real vulnerabilities on energy, weakness may persist.
“Emerging markets remains supported by structural trends,” concludes Price. “The majority of AI-related capital expenditure continues to be deployed in Asia, which should remain supportive of Korean and Taiwanese hardware and memory companies – and is a dynamic that should persist, regardless of geopolitical turbulence.”
Equally, in the longer run, the US-Israel-Iran conflict may be part of a broader recalibration of the relative risks of emerging markets versus their developed counterparts. China has been selling itself as a model of stability – in contrast to the current unpredictability of the US. Last week, Chinese premier Li Qiang told more than 70 global chief executives the country was committed to being a “cornerstone of certainty” amid an upheaval in the rules-based international order.
Read more on this from Fidelity here and from the FT here
In focus: Matters of interest
The Bank of England kept UK interest rates on hold last week, putting an end to any lingering hopes it might look through the current crisis to deliver lower borrowing costs. In common with his counterparts in the US, Europe and Japan, UK central bank governor Andrew Bailey said the environment was too uncertain to do anything but hold rates where they are. His remarks were received poorly by the market, however, and gilt yields spiked in the wake of the meeting.
The Bank of England’s statement said: “Conflict in the Middle East has caused a significant increase in global energy and other commodity prices, which will affect households’ fuel and utility prices and have indirect effects via businesses’ costs. Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy.”
The market is now pricing in two rises in UK interest rates by the end of 2026 – a huge shift in the space of a few weeks. It also assumes the Bank of England will raise rates to deal with the oil shock – by no means a given. Higher interest rates can do little to shift the price of oil and may simply induce stagflation. Bailey told the BBC: “I would caution against reaching any strong conclusions about us raising interest rates.”
Esther Watt, a bond strategist at Evelyn Partners, says: “The Monetary Policy Committee indicated CPI inflation was now likely to be between 3% and 3.5% over the next couple of quarters versus the February report, where CPI had previously been expected to fall back to around the 2% target from April. With the duration of the war remaining an unknown – with an off-ramp not obvious and concerns of second-round effects – the bank can be seen to be retaining optionality.”
The “unusual agreement across the board” displayed last week by the big central banks has been taken hawkishly by the market, she adds, continuing: “Swap markets are now pricing in a 25 basis-point hike as soon as June – a move that feels extreme given the slowing economic environment.”
With growth non-existent and an increasingly unmanageable debt burden, the UK economy is in dire need of rate cuts. The rate rises currently priced into the market may indeed now appear excessive, but gilts have few friends at the moment and anomalies could remain until the impact of the crisis starts to ebb.
