Investment - Articles - Markets ignore Chancellor as Middle East dominates

But markets are listening less to what is happening in the House of Commons and more on the war in the Middle East. Expectations that higher oil prices will flow through to re-inflation have sent yields higher, and cooled expectations for interest rate cuts. The market is now struggling to price in even a quarter point cut from the Bank of England’s Monetary Policy Committee. We think this is overly pessimistic but understand the caution.

As we shared in yesterday’s market report, there are echoes of the 1979 Iranian revolution, which not only caused a significant shift in geopolitics and re-configuration of cross-globe allies and partnerships, but also resulted in an oil crisis which saw the price of crude double over the course of a year, higher global inflation and slower economic growth. It will be this stagflation risk that equity and bond markets are most sensitive to, but the dynamics of the oil market have evolved significantly over the past 45 years.  Crucially, while oil prices may be higher now, consensus is that this disruption is transitory – and so too will the impact be on wider asset classes. In the event of an effective transition of power – and end to the fighting – oil prices are expected to return to $65 a barrel within weeks, and therefore the likelihood of a global growth shock is minimal.”