The week that was …
Economic round-up
UK facing biggest economic hit from Iran conflict
Britain faces the biggest economic cost of all major global economies from the war in Iran, according to projections from the OECD. The organisation downgraded its 2026 growth forecast for the UK from 1.2% to 0.7%, the largest drop of any G20 nation, and said inflation could hit 4%. Read more from the Independent here
UK’s pre-Iran inflation numbers held firm
UK inflation was steady at 3% in the year to February, with lower fuel prices offsetting a rise in the price of clothing – however, the data was collected before the US-Israel attacks on Iran. Pump prices for petrol and diesel have since soared. Read more from the BBC here
UK retail sales fall less than expected in February
UK retail sales fell less than expected in February, according to the Office for National Statistics. Sales were down 0.4%, following a revised 2% increase in January. Consensus from economists had been for a fall of 0.8%. Read more from Reuters here
UK consumer confidence slips
UK consumer confidence fell to an 11-month low in March, according to a survey from GfK, as concerns about the knock-on effects of the US-Iran war weighed on sentiment. The index fell from -19 in February to -21 in March. Read more from Sharecast here
Iran conflict weighs on UK business activity
Input price inflation jumped to its highest level for just over three years, according to the latest S&P Global PMI data for the UK. UK private sector firms indicated a marked slowdown in business activity growth during March as the war in the Middle East impacted customer demand, input prices and supply chains. The index came in at 51.0 in March, down from 53.7 in February. Read more from S&P here
US sees weakened business data in March
The US flash PMI reading for March signalled weakened output growth and sharply higher prices following the outbreak of war in the Middle East. US business activity growth slowed to an 11-month low in the month as businesses reported weaker new orders and a spike in prices. The service sector was harder hit, with manufacturers reporting an upturn in output and new order book growth. The headline flash S&P Global US PMI Composite Output Index fell from 51.9 in February to 51.4 in March. Read more from S&P here
US labour market holding steady
New applications for US unemployment benefits rose slightly over the week, suggesting a steady labour market. The report from the Labor Department on Thursday also showed the number of people collecting unemployment cheques in mid-March was the lowest in nearly two years. However, part of the decline may be people exhausting their eligibility for aid. Read more from Reuters here
Japan inflation jumps higher
The Bank of Japan said core consumer prices rose 2.2%, excluding special factors, in February as it released a new gauge that strips out “institutional factors” such as education and energy-related subsidies. The benchmark CPI figure rose 1.6%. Read more from Reuters here
Markets round-up
Equities and bonds sell off
Global stocks and bonds have seen their biggest combined sell-off since 2022, in response to the energy shock from the Iranian crisis. The MSCI All Country World index has fallen more than 9% over March, while a broader gauge of global government and corporate bonds has lost more than 3%. Read more from the FT here
Investors buy into global equity funds …
The week to 25 March saw global equity funds attract their biggest weekly inflow in nearly two and a half months after US president Donald Trump delayed strikes on Iranian energy infrastructure. Investors bought a net $37.77bn of global equity funds over the week, LSEG Lipper data showed. Read more from Reuters here
… but back away from UK assets
Political instability is having an impact on allocations to UK assets, according to Quilter’s latest investor trends survey. More than two-third (69%) of respondents said their appetite for gilts was being moderately or significantly shaped by recent political events. Read more from Quilter here
European government bonds continue sell-off
European government bonds continued to sell off on Friday, deepening a rout triggered by the US/Israeli attacks on Iran. French and German 10-year bond yields hit their highest level since 2011. Read more from CNBC here
Oil prices register weekly decline
Oil prices rose on Friday, but were set for their first weekly decline since early February, as president Trump paused threats to attack Iran energy plants. Investors, however, remain sceptical about the prospects for a ceasefire in the month-old war. Read more from Reuters here
Luxury goods sector hit by war in Middle East
Shares of luxury goods companies, including Ferrari, Hermès and LVMH, have been hit hard by the Iranian war. The conflict has highlighted the increasing importance of the Middle East to the global luxury industry and the high-net-worth economy. Read more from CNBC here
“The simplest explanation for gold’s sell-off is what we might call the ‘natural disaster effect’: if you hold safe assets for a rainy day, you sell them when it starts to rain.
Selected equity and bond markets: 20/03/26 to 27/03/26
| Market | 20/03/26 (Close) |
27/03/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5312 | 5325 | +0.24% |
| S&P500 | 6506 | 6369 | -2.12% |
| MSCI World | 4244 | 4181 | -1.5% |
| CNBC Magnificent Seven | 375 | 357 | -4.9% |
| US 10-year treasury (yield) | 4.39% | 4.44% | |
| UK 10-year gilt (yield) | 4.94% | 4.92% |
Investment round-up
Victory Capital bows out of Henderson deal
Victory Capital has stepped back from its proposed deal to acquire Janus Henderson Group. The group, which had increased its offer to $56.84 (£42.83) per share early in March, said it would only move forward if it had full support from the Janus Henderson Special Committee.
Saba Capital abandons merger plans
Saba Capital Management, the activist US hedge fund targeting UK investment trusts, has abandoned plans to merge two of its US closed-ended funds. Saba has ditched plans to merge the Saba Capital Income & Opportunities fund (BRW) and Saba Capital Income & Opportunities fund II (SABA), citing market conditions.
Rathbones launches EM equities fund
Rathbones Asset Management has launched an active global emerging markets equity fund, which will be managed by Tim Love and Joaquim Nogueira. The Rathbones SICAV Global Emerging Markets Equity fund will hold a diversified portfolio of between 80 and 120 stocks.
New managers for BG European Growth
Baillie Gifford European Growth has replaced the management team in an effort to shore up performance. The £281m trust is down 26.9% over the past five years under managers Stephen Paice and Chris Davies – around 75% behind the wider sector. It is the only trust in its sector to make a negative return over the period. Joe Faraday will take over lead management.
Brooks Macdonald appoints new CIO
Brooks Macdonald has appointed William Hobbs as chief investment officer, effective from 7 April 2026. Over the last two decades, Hobbs has held several senior leadership roles with Barclays, including head of multi-asset wealth, head of global equity strategy and head of investment strategy.
RBC BlueBay launched Japan bond fund
RBC BlueBay Asset Management is launching a long-only, yen-denominated Japan bond fund, which will seek to capitalise on the shifting Japanese fixed-income landscape. The fund will primarily invest in Japanese government bonds and domestic corporate credit, including Samurai notes.
AI could widen wealth gaps, warns Fink
In his annual letter to investors BlackRock CEO Larry Fink warned there was a real risk AI could widen wealth inequality “if ownership does not broaden alongside it”. He added: “The economy is rewarding scale like never before. In industry after industry, we are seeing more divergent, ‘K-shaped’ outcomes, where leading firms pull further ahead while others struggle to keep pace.”
… and the week that will be
Governments respond to Iranian crisis
As the war enters its fifth week, Asian and European governments are increasingly taking action to lessen the impact of higher energy prices. There have been moves to suspend regulatory measures, alter tax regimes and impose export bans. Actions are likely to become more extreme as the war goes on. Read more from the FT here
Economists’ attention turns to US jobs report
The US jobs report for March will be released on Friday with economists closely watching for signs of weakness after employers cut 92,000 jobs in February. Earlier in the week, investors will get a look at private sector hiring in March with the Wednesday release of the ADP employment data. Continued weakness in the labour market could put more pressure on the Federal Reserve. Read more from Investopedia here
The week in numbers
Eurozone inflation: Consensus expectations are for the flash March reading for Eurozone inflation to show prices rising 2.2% year-on-year and 0.9% month-on-month, compared with 1.9% and 0.6% in February.
US jobs data: Consensus forecasts are that the March ADP employment report will show 80,000 jobs have been created – up from 63,000 the month before.
US non-farm payrolls: Consensus expectations for the March US non-farm payrolls is that 50,000 jobs have been created – a rise on last month’s 92,000 loss. The unemployment rate is forecast to rise to 4.5% from 4.4%.
US consumer confidence: Consensus expectations are that US consumer confidence will drop to 86 in March, from 91.2 the month before.
US retail sales: Consensus forecasts have US retail sales for February falling 0.1% month-on-month.
US business sentiment: Consensus forecasts have the ISM US services purchasing managers index (PMI) for March falling to 54 from 56.1 the month before.
China business sentiment: Consensus expectations are that China’s manufacturing PMI will rise to 49.8 from 49, while the non-manufacturing PMI will move back into expansion territory, at 50.5, up from 49.5.
In focus: Gold meets its match
Gold has burnished its safe-haven credentials over the past two years, dutifully rising in response to the tariff wars and all the various other dramas that have been sent to test global financial markets – until this one. So apparently the bull run in gold does have its limits after all – and the recent sell-off has been one of the defining features of markets’ response to the Iranian crisis.
Gold’s 15% drop over the past month may have come as a surprise to those holding it as a defence against geopolitical uncertainty but the current crisis has a number of features that make life harder for the precious metal. The first is that it lifts the potential for inflation – and therefore higher interest rates. Gold has historically shown correlation with real interest rates, so was always likely to lose ground as rate expectations were repriced.
There is also the problem of a higher US dollar. The greenback has tended to correlate with higher oil prices and is up around 2.4% against a basket of currencies since the start of the month. This is generally bad news for gold, which competes with the dollar as a major safe-haven asset.
“With the bounce in oil prices, rates have repriced higher and the dollar has strengthened – and both are negative for gold,” say Sara Niven, manager of the Aberdeen Global Balanced Growth Fund. “Additionally, there has been isolated speculation – notably around Turkey – that some central banks could mobilise gold reserves for liquidity. These factors emerged when gold was trading 25% above its 200-day moving average, so a reversal from stretched levels of some magnitude was not a surprise.”
Previously, an investor might expect gold to benefit as a safe-haven asset during a time of conflict or as a hedge against inflation, yet it has sold off as investors look to take risk off the table.”
For his part, Lothar Mentel, CIO at Tatton Asset Management, argues it may actually be gold’s status as a safe haven that prompted the declines. “The simplest explanation for gold’s sell-off is what we might call the ‘natural disaster effect’,” he explains.
“If you hold safe assets for a rainy day, you sell them when it starts to rain.” If safe havens are there to provide liquidity in tough moments for markets, therefore, it makes sense gold would sell off as investors look to cover their losses elsewhere.
Gold’s changing patterns
Research from DWS indicates instances of a gold sell-off as equities weaken have become more common since 2016. It found that, during the period from 1975 to 2016, gold generally showed only a weak correlation with equity-market movements – and, in particular, gold tended to gain in value when equities sold off sharply.
Since 2016, though, gold has tended to show a positive correlation on days with significant equity-market declines. “In other words,” DWS notes, “precisely in phases when a safe-haven asset would be expected to provide stability, gold has tended to move in the same direction as equities”.
The research explains this shift by way of a change in the buyers of gold, adding: “Gold is a narrower and less liquid market segment compared with the stock or bond market. It has also become increasingly shaped by passive demand – through ETFs or rules-based strategies.”
With the broad withdrawal of proprietary trading by banks and brokers, the market has lost an important ‘shock absorber’. It also points to the increase in the share of passive investors – “players who tend to amplify market moves rather than cushion them”. There may also be investors with a strict risk budget who need to sell when prices move.
The speculative outlook for gold brings excess risk into our portfolio – and we took the opportunity to realise our gains at near all-time highs.”
That all means, instead of acting as a diversifier, gold has traded as a proxy for risk appetite, says Jock Henderson, investment analyst at CG Asset Management. “Previously, an investor might expect gold to benefit as a safe-haven asset during a time of conflict or as a hedge against inflation, yet it has sold off as investors look to take risk off the table.”
Then there is the additional problem of cost. Supposed ‘safe-haven’ assets inevitably lose some level of protection when prices are at all-time highs. Even with the recent falls, the gold price is still up 41% over the past year and 153% over the past five years. Insurance inevitably becomes more expensive as the need for it increases, but that may now have reached its peak.
Could it turn around?
Opinion is mixed on whether the gold price can be a safe haven from here. It is not clear that the complex buying patterns that have created the current gold price weakness are likely to shift. “Its pricing has become increasingly sentiment-driven,” says Henderson. “The speculative outlook for gold brings excess risk into our portfolio – and we took the opportunity to realise our gains at near all-time highs.”
While valuations may be more interesting, Aberdeen’s Niven still has reservations. “With gold now down nearly 20% from the start of the conflict, the entry point is becoming more attractive as we believe the longer-term drivers are still intact,” she explains.
“Since Q4 2025, we have reduced the fund’s gold allocation on strength, moving from 9% at the end of September 2025 to 5% as of February 2026. Although valuation looks better, the initial impact of the conflict has been tighter financial conditions and, as a result, we think it is premature to add to our exposure.”
Part of the problem has been that gold was enjoying a perfect storm. There was plenty of geopolitical instability – and it came at a time when the dollar was weakening, interest rates were due to fall and inflationary pressures were easing. Even if the war in Iran proves to be relatively short-lived, it is unlikely that the inflation and interest rate environment will return to previous levels.
The lower price may tempt back a few ‘goldbugs’ but the environment has fundamentally changed and gold may not prove to be the safe haven investors would hope for in this new environment. Expert investors have already started to back away.
Read more on this from CNBC here
In focus: Testing resilience
The headline from the OECD’s Interim Economic Report, Testing Resilience, was the potentially woeful outcome for the UK economy should the Middle Eastern crisis prove persistent. The UK faced the biggest downgrade in economic growth projections of any other G7 country, with growth falling to 0.7% this year.
Elsewhere, though, there were some encouraging signs from the report – just not for the UK. In spite of the crisis, the organisation says, global GDP growth should remain relatively stable, sustained by “robust technology-related investment and gradually lower effective tariff rates”. For 2026, its growth projection remains at 2.9% while its 2027 projection dropped just 10 basis points.
The evolving conflict in the Middle East, the report continues, “weighs on growth and generates significant uncertainty around global demand”. The OECD forecasts that global inflation for the G20 could jump as high as 4% this year, but should drop back to 2.7% next year. Even in the UK, it is expected to drop back to 2.6% next year. These are not, then, the double-digit rises seen in the wake of Covid and the Ukraine crisis.
The OECD has modelled more complex scenarios with a more prolonged disruption to shipments through the Strait of Hormuz or sustained closures of oil and gas facilities, for example “a scenario where oil and gas prices rise well above baseline projections – by around a quarter in the first year and remaining elevated thereafter – combined with tighter global financial conditions”.
“In this case,” it notes, “global GDP could be around 0.5% lower by the second year, while consumer prices would be higher by about 0.7 percentage points in the first year and 0.9 percentage points in the second.”
The report contains some clear messages for policymakers in handling the crisis – suggesting any support measures should be temporary and well-targeted, while preserving incentives to reduce energy use. Policymakers should avoid the temptation for “broad-based subsidies and transfers, tax reductions and price caps”, it adds, as these weaken incentives to reduce energy use and could stretch already under-pressure government finances.
In a recommendation that could have been tailor-made for the UK, the OECD suggests that reducing reliance on imported fossil fuels and accelerating energy efficiency measures, while upgrading electricity grids, should all be explored to lower exposure to geopolitical shocks in the longer term. Facing a second energy shock in the space of just five years, governments really have to learn some lessons this time.
