Investment Viewpoint: What the truce changed, and what it didn't

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Markets and macro insights with Bernard Swords, Chief Investment Officer

Key takeaways

1. Truce hopes lifted sentiment. Markets welcomed the two‑week truce and talks as a step toward de‑escalation. The situation is still fragile, so prices remain headline‑driven.
2. Risk assets rose; bonds stayed cautious. Global equities gained and the US dollar softened as safe‑haven demand eased. Bond yields fell only slightly, signalling ongoing inflation nerves from higher energy costs.
3. Tech and cyclicals led; energy lagged. Technology, communication services, industrials and financials outperformed as worst‑case fears receded. Energy stocks trailed as oil prices pulled back, while defensives posted smaller gains.
4. Asia‑Pac rebounded; the US lagged. The Regions hit hardest earlier in Q1, especially Asia‑Pacific, led the recovery. The US, which had been more resilient during the stress, underperformed in the rebound.

What were the key market developments last week?

• Financial markets experienced another eventful week, dominated by developments in the Middle East. The announcement of a two‑week truce and the start of negotiations was welcomed by markets and seen as a meaningful step towards easing tensions. While the situation remains fragile, the shift from active conflict to dialogue has been interpreted as a positive signal, and markets reacted accordingly.
• Global equity markets rose over the week, reflecting improved investor confidence, while the US dollar weakened as demand for traditional “safe‑haven” assets eased. Bond markets were more cautious, with only modest declines in yields, suggesting that investors remain nervous about the inflation impact of the higher energy prices.

Where did equity gains come from last week and what does the sector and regional leadership tell us about investor sentiment?

• Equity market gains were led by growth‑oriented sectors such as technology and communication services, alongside more economically sensitive areas including industrials and financials. These sectors tend to benefit when fears of worst‑case outcomes recede and when investors become more confident. By contrast, energy stocks have lagged as oil prices pulled back, while traditionally defensive sectors have delivered only modest gains. Regionally, markets that were hardest hit earlier in the year, particularly in Asia‑Pacific, have rebounded strongly. The US, which had held up better during the period of stress, has been a relative laggard during the recovery phase.
• Despite the positive response, uncertainty remains. The durability of the ceasefire is not guaranteed, and markets will continue to respond to new information as it emerges. That said, the shift towards negotiations signals a willingness on all sides to reduce tensions, marking an important step in the de‑escalation process. It does not resolve all risks, but it does reduce the likelihood of further immediate escalation, which has helped calm markets for now.

How are central banks likely to respond if energy prices stay elevated?

• After the conflict began, rising energy prices prompted particularly strong language from central banks, especially in Europe. While energy prices have eased somewhat, they are still expected to remain higher than previously anticipated due to damage to energy infrastructure and tighter global supply. This raises the question of whether central banks will maintain their more aggressive stance or begin to soften their tone if energy prices continue to retreat. Bond markets so far suggest that interest rate increases in Europe remain likely, there has only been a small decline in bond yields since the initial announcement of a truce. There is some scope for a more positive surprise if policymakers become more reassured about inflation trends.
• Another important indicator we are watching is shipping activity through the Strait of Hormuz. Increased traffic would be a sign that global energy supply chains are returning towards normal conditions, helping to ease pressure on prices.

What effect will higher energy prices have on global growth?

• From an economic perspective, higher energy prices do act as a drag on global growth by squeezing household spending and raising costs for businesses. However, it is important to put this in context. The global economy entered this period from a position of reasonable underlying strength, particularly in the US, where energy self‑sufficiency provides a degree of insulation.
• International organisations and economic forecasters have trimmed global growth expectations for 2026, but the consensus remains that this represents a slowdown rather than a move towards recession. Europe and parts of Asia, as net energy importers, are more exposed to the impact of higher energy costs, while the US remains relatively well placed.

The week ahead: what to watch out for

Looking to the week ahead, developments in the Middle East will remain central to market sentiment, particularly the stability of the ceasefire and evidence of increased shipping through key energy routes. Alongside this, upcoming economic data will provide further insight into global growth. China is due to release GDP and trade figures, which will help assess whether the improvement seen earlier in the year is continuing. In Europe and the US, industrial production data will offer clues about the strength of the manufacturing recovery, while US producer price data may show whether higher energy costs are beginning to feed through into broader inflation pressures.