Our view on a week in markets

Hello, it's Friday the 6th of March. Normally we do these videos on a fortnightly basis, but I thought given the news around Iran, it's worth just having a quick check-in this week as well. There's been obviously lots of news and lots of uncertainty as a consequence of that news, but the market impact so far, interestingly enough, has been relatively muted. And in fact, you could argue that the tariff surprise a little under a year ago, was actually a much bigger market impact than we've seen so far with this conflict. 

What’s going on in the markets?

We put out a note, first thing, Monday morning, written by the head of the Multi-Asset team, John Husselbee, and essentially, I suppose, making the case firstly that it's a firmly complicated environment. It's a wait-and-see kind of environment. We need to see what comes down the track, but the sort of immediate short-term risk, aside obviously from the geopolitical ones, really related to the oil price. Oil has gone up over the course of the week. It started last week, around, well it ended last week, around about $72 a barrel. It's now around about $85. So it has increased. There is an inflationary risk associated with that, particularly if it stays at that sort of more elevated level for some time will feed through into prices. You get that base effect that we've talked about before coming through again. But again, for context, it's worth remembering that $85 a barrel is the level we saw in 2024, so not that long ago. It's not ideal from an inflationary perspective, but it is manageable as long as it doesn't sort of catch on elsewhere too. 

Turning to equity markets, the impact has been relatively small so far. There has been increased volatility, as you would expect. But looking at the five-day returns, which includes last Friday, the US is down only a percent or so over this period. The UK's down around about 4% over that period. Europe's down around about 6% over the period. But these are not massive moves demonstrating huge amounts of risk aversion. But clearly, it is a degree of sort of a sell-off coming through and you will see that come through in terms of market performance. 

The fixed income markets, reacting to that oil price going up. You have seen some increases in yields, but they've been relatively modest as well. To give you some context I'll just check the numbers here. There have been some moves up in government bond yields, reflecting that concern around inflation, perhaps. Gilts ended last week at 423 and today at 456. And the US 10-year was 3.9 last week and now at 4.14. So they have moved up, but these are not dramatic moves either, really, in the grand scheme of things. So it's a concerning conflict. It's got sort of potential larger geopolitical and economic ramifications if it's a lengthy and a complicated one. But as of today, the market response has been relatively level headed. I think it's fair to say relatively appropriate given the impact so far that we've seen in terms of the global economy. Putting the humanitarian risks and all the rest of it aside, I think that's a relatively sensible response so far from markets.

What are we doing about it?

In terms of what we do about it, these sorts of environments really do underline the value of Multi-Asset investing. It is diversified, you have lots of different returns drivers in the portfolio. It's a reminder of the importance of staying disciplined, keeping invested through these difficult, challenging times and allowing diversification to help cushion some of those market impacts, whilst at the same time looking at long-term data that suggests that despite these sorts of shocks, markets tend to go up in the long run. And finally, think about being differentiated. We are in an environment where changes are taking place in terms of the multipolarisation of the world, in terms all sorts of different returns drivers that are coming through and making sure that you have a dynamic, diversified, differentiated approach to investing in your portfolios. That's it from me, have a good weekend when you get there, and we'll see you next time.