There was no cunning plan as ever, if one at all, and despite comments to the contrary, his administration seemed surprised at the effect on stocks, bonds and energy prices. Initially there was only a limited effect on indices which were coming off all time highs (probably part of his ‘thinking’) but as the conflict has escalated, volatility has increased and energy prices and sovereign yields have reached some uncomfortable levels. As this goes to press, we have just seen a classic TACO moment as Trump backs away (for five days) from vowing to obliterate Iranian civilian infrastructure, possibly advised by his allies that this will lead to a failed state. It looks to be a while before this is over and even when it is the damage to Gulf energy infrastructure will take years to repair whether the Straits of Hormuz are open or not.

The Fed had no choice but to remain on hold and there were few changes to their statement. There was support for looking through energy prices but the spikes in Treasury yields do not create an environment for cutting rates and the new Chairman will have a job convincing the FOMC to vote for the levels of cuts that Trump wants (except Miran).

The ECB remained on hold with a hawkish tone and retain their option to act either way (‘agile and vigilant’). This check in global stability comes at a time when growth was just beginning to become more established across the Euro area but the block as a whole remains exposed to the negative effect of energy price spikes and supply disruption. 

The BoE scrapped any thoughts of rate cuts and remained on hold with a 9-0 decision and remain ‘ready to act’. They are in a fair pickle now as growth forecasts are halved and inflation expectations raised, not an environment to cut or hike. Market expectations aside they are likely to remain on hold for the rest of the year, as things stand.

Gilts yields saw a concerted move higher across the curve with the 30 year suffering a peak to trough move of over 50bp, a loss of near 8% in capital, the sharpest rise since Truss/Kwarteng. The two year saw a move of over a 100bp in yield (a 2% drop in capital) as the market moved to price in four rate hikes in 2026, this seems excessive.

Gulf Debt Capital Markets have unsurprisingly shut down but European and US markets are still functioning well despite the volatility. Secondary market liquidity has been good and we have seen some large primary deals despite the volatility. Amazon came to market with a whopping $38bn issue in the second week (Stellantis also issued EUR 5bn hybrids on the same day) and then a few days later sold EUR 14.5bn in a multi tranche out to 2064. IG Credit spreads have been remarkably stable but haven’t escaped all the volatility; Sterling spreads are back to where they were in the middle of last year and with the move in Gilts there are some cracking all-in yields on offer. 

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