Macro is firmly back in control this week and it’s being driven by geopolitics rather than policy.
The Iran conflict has entered a more dangerous phase with Trump issuing a 48-hour ultimatum Saturday to reopen the Strait of Hormuz and threatening strikes on Iran’s power infrastructure. Tehran has responded in kind, escalating attacks across the Gulf. With ~20% of global oil flows running through Hormuz, disruption has been immediate, over 40 energy sites damaged and supply chains increasingly impaired.
Oil has surged above $110 to $120 at points, up more than 50% since the conflict began, triggering a broad repricing across markets. What initially looked like a contained geopolitical shock is now being treated as a sustained supply shock with real economic consequences.
Global equities are rolling over, with Asian markets approaching correction territory, while volatility across currencies and EM has spiked. At the same time, bonds are no longer acting as a hedge, yields have surged to multi-month highs as inflation expectations reset. Markets are now even pricing the possibility of rate hikes from the Fed and other central banks, a sharp reversal from just weeks ago.
The UK is particularly exposed here. Gilts are heading for their worst month since the 2022 LDI crisis, with yields jumping as traders price in as many as four BoE hikes this year. The combination of imported energy dependence and fragile growth leaves policymakers in a difficult spot, caught between inflation and a weakening economy.
Even traditional safe havens are failing to provide cover. Gold has seen one of its sharpest drawdowns in decades, falling nearly 9% in a single session and wiping out its gains for the year, as rising yields and liquidity pressures force broad deleveraging. The usual “flight to safety” playbook isn’t holding.
Crypto, meanwhile, is behaving less like a hedge and more like a risk asset. Bitcoin has traded in a wide $67k to $74k range, briefly dropping below $69k as war headlines intensified, and is still down roughly 20% since the conflict began. Price action has largely tracked broader risk sentiment, with higher energy costs also feeding through to mining economics. That said, it’s shown relative resilience versus equities and gold at times, holding key technical levels around $67k to $68k.
Under the surface, positioning remains cautious. ETF flows have been mixed, sentiment indicators remain in “extreme fear,” and liquidity is thin, suggesting the market is stable, but not yet confident.
Beyond public markets, stress is also building in private capital. Redemption pressure is rising in private credit, with major funds beginning to gate withdrawals, while capital is rotating away from software into "hard asset" strategies including industrials, energy and infrastructure, seen as more resilient in an AI-disrupted and inflationary world.
Taken together, the picture is clear: this is no longer just a geopolitical story, it’s a macro regime shift. Markets are being forced to price a world of higher energy costs, stickier inflation, tighter financial conditions, and more persistent volatility. Until there’s clarity on the trajectory of the conflict (and in particular the status of Hormuz), positioning is likely to remain defensive, cross-asset correlations elevated, and conviction low.