Market Review 30th March 2026

Everything you need to know, Simplified!

Summary

• Volatility rose sharply, with the VIX Index at its highest since 2025, as Middle East developments dominated a quiet data week

• Equity and credit markets remained resilient despite the shock, suggesting a benign growth and inflation outlook is still being priced

• Continued weakness in UK government bonds saw yields move higher on fears of a more persistent inflation impulse

• Markets are now pricing two conflicting narratives: resilient growth versus entrenched inflation

• The bond market appears focused on upside inflation risks, while equities continue to anchor to a softer, more stable outcome

• Focus will likely remain on the Iran war as it enters its fifth week, but eurozone inflation and US labour market data will provide an early test to the new forecasts since the war began.

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Market Review

Bonds and equities tell separate tales

It is not just energy that is in short supply, but certainty too. The VIX Index rose to 31 last week, its highest level since the tariff volatility of 2025. With not much on the economic calendar, investors focused on developments in the Middle East with news flow steering equities, bonds and oil prices. Despite this, headline equity and credit markets have remained notably resilient, while sovereign bonds have weakened sharply, particularly in the UK. Two distinct narratives are now being priced simultaneously: a relatively benign outcome in risk assets, and a far more troubling one in government bonds.

Global equities are down 3.4% year to date in sterling terms. Emerging markets and Japan remain the standout performers, still in positive territory. The UK is broadly flat, Europe is in line with global markets, and the US has lagged, down 6.6%, with technology again under pressure last week. Credit markets tell a similar story of resilience. Global high yield spreads have widened modestly to 3.4%, around 0.5% higher on the year, while investment grade spreads sit at 0.83%, only 0.1% wider.

Taken together, risk assets continue to price a contained outcome. The market is assuming that any inflationary impulse from the conflict with Iran will prove manageable and insufficient to materially damage demand or corporate profitability.

The bond market is telling a different story. Yields have moved higher, reflecting concern that a more prolonged conflict could embed inflation. There are echoes here of the 1970s.

Late-1960s fiscal expansion associated with the Vietnam War pushed inflation higher, while monetary policy remained too accommodative for too long. The collapse of the Bretton Woods system in 1971 removed the anchor on the US dollar, adding further fuel. The subsequent energy shocks, first the Yom Kippur War and oil embargo, then the Iranian Revolution, turned an inflation problem into an inflation regime. By 1980, inflation had reached 14.8% in the US and 21.6% in the UK.

It ultimately took the Volcker Shock, with rates pushed above 20% under Paul Volcker, to restore credibility, at the cost of a deep recession and a prolonged period of weak real equity returns.

The parallel is not exact, but it is instructive. If the bond market is right, and inflation proves persistent, then current equity pricing looks sanguine.

For now, there is little evidence that this dynamic is taking hold. It may be that bonds are aggressively pricing a tail risk, while equities remain anchored to a more probable and resilient path. In doing so, the bond market appears focused on upside inflation risks while underappreciating the downside risks to growth.

There remains a path back toward something resembling the previous equilibrium if the conflict de-escalates quickly, but that window is narrowing. Initial mitigation mechanisms, whether through rerouting supply, drawing on reserves or utilising sanctioned flows, are finite. Even in the event of a ceasefire, with the Iranian regime still in place the geopolitical risk premium is unlikely to fully dissipate. The risk of renewed disruption to the Strait of Hormuz, and by extension global energy supply, remains a live one.

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The week ahead

Tuesday: Eurozone inflation

The preliminary reading for inflation in March is expected to come in hot at 2.6% rising from 1.9% in February. This will be the first glimpse into inflation since the surge in oil prices triggered by the Iran war. 

Friday: US employment data

Unemployment in the US is expected to remain at 4.4% while job growth and labour participation likely picked up from a weak reading in February.

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