I finished last quarter’s commentary making the case for a more optimistic outlook with improving growth and lower interest rates, though muttering about the demise of US ‘exceptionalism’. For a while that was true with good gains for UK, European and other non-US markets.  But then March brought President Trump’s (and Bejamin Netanyahu’s) ill-judged war with Iran, dragging in so many other nations and, of course, sowing seeds of chaos in energy markets and their sequiturs. Markets duly gave up all the gains, and the domestic impact is already being felt in fuel prices. 

Historically, markets have ‘found a bottom’, i.e. stopped falling, prior to the actual end of hostilities when possible solutions begin to emerge. Unnervingly, I keep being reminded of the 1970s when an oil price shock tipped the UK economy over the edge and ultimately into the arms of an IMF rescue. But this is probably not a good comparator though, true to pattern, the stock market found its bottom in January 1975 while the peak in inflation (at 27%!) was not reached until August of that year.

Markets can look through the current events if a lasting truce/peace can be established or at least a credible path towards that end, but that is a big IF. President Trump’s actions have wreaked huge damage on energy markets (not to mention lives and livelihoods lost in Iran and Lebanon) and that will rattle down through supply chains and so many dependent markets (fertilizers etc.). Some good can come from such price moves, Europe learnt the lesson after Russia’s invasion of Ukraine and subsequent leap in the gas price and diversified its energy sources; this time the price of gas has not been a problem for them. Unfortunately, the UK is an outlier here. 

Inflation is sure to rise over the coming months as the energy price increases and supply bottlenecks work through, but this can be ‘transitory’ if a solution is found to the conflict. This matters for the course of interest rates on both sides of the Atlantic, the initial response to the war was to presume that rates would have to rise to counter the inflation, but this is giving way to a (more likely) wait-and-see with Central Banks holding rates as they are for the moment. 

I can’t escape the feeling that Presidents Putin and Xi Jinping are enjoying this, The Economist’s headline of: “Never interrupt your enemy when he’s making a mistake” accompanying a picture of Xi Jinping silently watching a loquacious Trump was a treat. I shall also be watching the Hungarian election and whether the long rule of Viktor Orban (friend to Donald Trump and Vladimir Putin) can be brought to an end despite recent support from J D Vance and Marine Le Pen (since happened!) 

I am hopeful that the pattern of previous conflicts will prevail and that Trump has passed his domestic ‘pain threshold’ with this war. I am also conscious that events may well have overtaken these remarks by the time this reaches you!
 

The full Quarterly Review is available here.

April 2026

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