10.03.26 - Conflict far from over

Markets rebounded after a sharp risk-off move earlier in the week, following comments by Donald Trump suggesting that the conflict with Iran could end “very soon.” During a press conference, Trump stated that he expects the assault to end shortly, while at the same time warning that the United States would launch additional strikes should Iran attempt to block global energy flows through the Strait of Hormuz.

The remarks triggered a relief reaction across financial markets. Oil prices fell sharply after their previous surge, easing immediate inflation concerns and allowing risk assets to rebound.

However, the geopolitical situation remains far from resolved. Iranian leadership has reportedly warned that not “one liter of oil” will be allowed to transit the Strait of Hormuz if US and Israeli attacks continue. Iran’s foreign minister also dismissed the possibility of ceasefire negotiations with Washington.

At the same time, Israeli Prime Minister Benjamin Netanyahu stated that the military campaign is “not done yet,”indicating that Israel’s strategic objective remains the dismantling of Iran’s ruling clerical regime.

Markets: the oil pullback sparks risk rally

• Equities: Global equities are seeing a rebound

• Bonds: Yields eased with energy prices retreating - US 10-year Treasury fell back to 4.11%

• Currencies: USD weakened markedly, EUR/CHF rising back above 0.90

• Commodities: Oil prices corrected sharply after their recent spike - WTI fell back below USD 80/barrel (-15%) while precious metals moved higher - Gold: USD 5220/oz and silver USD 89/oz

• Cryptos: joined the risk-on stance - Bitcoin back at USD 71k

• Volatility: The VIX declined to 22

My View: Markets are currently extremely headline-driven, reacting to every political statement rather than to the structural risks of the situation.

I am surprised by the market reaction. There is still absolutely no clarity on the duration of the Iran war or how long disruptions to global energy flows could persist. Yet markets are already behaving as if the conflict is close to being resolved.

However, the divergence in rhetoric highlights that the conflict still carries significant escalation risk. The comments from President Trump were clearly aimed at calming markets. However, they do little to change the underlying realities on the ground. Military operations continue, and the threat of disruptions in the Strait of Hormuz remains significant.

This kind of environment often leads investors to chase short-term news flow instead of assessing the bigger picture. History shows that reacting emotionally to headlines usually means running behind the market rather than ahead of it, leading to more to losses than gain

At this stage, the key question remains unchanged: How long will the conflict last, and how long will energy flows remain disrupted?

Until clearer answers emerge, I expect volatility to remain elevated and equity indices to face further downside from current levels while oil prices could see higher levels again.

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