Market Review 23rd March 2026

Everything you need to know, Simplified!

Summary

• Geopolitical risk remained elevated as the conflict between the US, Israel and Iran intensified, disrupting energy markets and keeping investors focused on the risk of a prolonged shock to oil and gas supply through the Strait of Hormuz

• Global equity markets declined as rising energy prices, renewed inflation concerns and mixed central bank communication weighed on sentiment, with US equities leading declines, though energy stocks provided notable relative support

• Government bond markets sold off sharply, led by UK gilts, as investors reassessed inflation risks and interest rate expectations following a more hawkish shift in central bank rhetoric

• Scrutiny of private credit increased amid retail investor outflows and governance concerns, though spillover risks to the broader financial system remain limited.

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Market Review

Middle East: Energy shock dominates, but markets remain measured

Developments in the Middle East continued to dominate global markets this week, with investor attention firmly centred on the Strait of Hormuz and the implications for global energy supply. Continued attacks on shipping, damage to key infrastructure and restrictions on transit have raised the risk of a significant energy shock, keeping volatility elevated across commodity markets.

While the headline exposure remains substantial – around a fifth of global oil supply normally transits the Strait – the realised disruption to supply has so far been less severe than initially feared. Limited transit continues for selected countries, bypass pipelines in Saudi Arabia and the UAE are operating near capacity and coordinated strategic reserve releases have helped offset part of the shortfall. At the same time, higher prices and slowing activity are beginning to temper demand.

Energy markets have nevertheless reacted forcefully. Oil prices remain elevated, while gas prices have risen sharply, particularly in Europe and Asia. Despite this, broader financial markets have remained relatively orderly. Equity drawdowns have been contained and moves in bond yields, while meaningful, suggest investors are still assuming a shorter or more contained conflict.

That said, risks remain clearly skewed. Markets are likely to stay highly sensitive to headlines, particularly around any further escalation or credible signs of de escalation. Sustained disruption to energy infrastructure or supply routes would likely prompt more pronounced moves across both equity and fixed income markets.

Central banks: Policy signals drive volatility and repricing

The latest round of central bank meetings demonstrated once again the difficulty policymakers face in navigating an energy driven supply shock. While the Federal Reserve (Fed), European Central Bank (ECB) and Bank of England (BoE) all held rates steady, market reactions were driven less by the decisions themselves and more by shifts in tone, projections and forward guidance.

In the UK, gilt markets were at the centre of the reaction. Following the BoE’s meeting, upward revisions to near term inflation projections and references to potential tightening triggered a sharp repricing in rates. Yields moved significantly higher, with the 10 year approaching 5% – its highest level since 2008 – and markets shifted to price in up to three rate hikes by year end, a dramatic reversal from expectations for cuts at the start of the year.

This response appears difficult to reconcile with underlying domestic conditions. Governor Andrew Bailey later sought to temper market expectations, emphasising that current inflation pressures largely reflect an external energy shock rather than strength in domestic demand. With UK growth stagnating, unemployment at 5.2% and demand softening, the outlook remains more consistent with a prolonged pause and eventual easing once energy pressures fade.

From an investment perspective, the repricing has improved the attractiveness of UK fixed income. The ‘belly’ of the curve – gilts in the three to ten year range – offers a compelling balance of yield and volatility, capturing elevated starting yields without the extreme price sensitivity of longer maturities.

In the United States, the Fed also held rates steady, maintaining a cautious stance while acknowledging extreme levels of uncertainty. Chair Jerome Powell highlighted the risk that energy driven shocks could become embedded in inflation expectations, reinforcing the challenge of balancing inflation control against slowing growth. This was reflected in the data, with producer price inflation accelerating to 3.4% year on year, its fastest pace in a year.

US equities declined amid renewed inflation concerns and rising yields, with major indices ending the week lower. Energy stocks stood out as clear outperformers, benefiting from higher oil prices. Treasury yields moved higher overall, with the 10 year rising to around 4.4% as investors reassessed the policy outlook.

In Europe, the ECB also kept rates on hold but raised its inflation forecast, warning that higher oil and gas prices could have a material near term impact. Across developed markets, central banks remain on hold but increasingly constrained, as energy driven inflation pressures complicate the disinflation narrative.

Private credit: Cracks emerge, but risks remain contained

Private credit markets came under increased scrutiny as retail investors stepped up withdrawals from semi liquid funds, exposing structural weaknesses in parts of the asset class.

Pressure reflects a combination of factors, including high profile instances of fraud that have highlighted risks in opaque lending structures, concerns around underwriting standards – particularly in software related lending – and persistent uncertainty around asset valuation in the absence of frequent market pricing.

These issues have driven elevated redemption requests in retail focused vehicles. However, built in structural features such as redemption caps have limited the need for forced asset sales, allowing stress to be absorbed gradually rather than through disorderly market moves. Investors seeking liquidity are instead facing delays, while underlying assets continue to reprice over time.

Importantly, broader systemic risks appear contained. Private credit represents a relatively small share of total corporate borrowing, and most capital remains locked in long term institutional structures. While exposures across banks and non bank lenders warrant monitoring, they remain modest relative to the size of the overall financial system.

The adjustment is therefore likely to play out over time, through declining valuations and selective defaults rather than a sudden dislocation. At the same time, significant capital has been raised by distressed and opportunistic credit investors, providing a potential backstop by supporting secondary market demand and limiting wider contagion.

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The week ahead

Geopolitical developments in the Middle East:

Markets will remain highly sensitive to developments around the Strait of Hormuz, energy infrastructure and any signs of escalation or de escalation

Tuesday: US, UK, Europe, Japan and Australia flash Purchasing Managers’ Index (PMI) for March – may give an indication of whether the conflict is impacting sentiment.

Quieter week for macro news:

Tuesday: US Manufacturing and Services PMI – both expected to remain in expansionary territory

Tuesday: Japan Consumer Price Index (CPI) for February – headline inflation fell last month but core remains sticky – important read for the newly energised Takaichi government

Wednesday: UK CPI for February – expected to remain constant at 3%

Thursday: US Initial Jobless Claims – expected to tick up slightly versus last month’s read.

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