That is a painful backdrop for investors, because falling equities are no longer being cushioned by bonds. Yields continued to climb throughout the past month. The US 10-year Treasury has moved back towards this year's highs, near 4.5%, though it has eased slightly since. The 30-year came close to 5%.

The sharpest moves, however, have come at the front end of the curve. Over the space of a month, Germany's two-year yield has jumped by 70 basis points. In the US, the two-year has risen by 55 basis points. Those moves reflect a wholesale reversal in expectations for monetary policy. Investors had been looking for rate cuts this year. They are now bracing for hikes. Traders are, for instance, pricing in three ECB rate increases by September. Those expectations remain highly volatile, and I cannot tell you whether the Fed or the ECB will actually raise rates in 2026. But markets have already done the tightening themselves. Borrowing costs for companies and sovereigns have risen sharply, and that amounts to monetary tightening in all but name.

That, then, is where things stand after a month of war in Iran. According to US officials, the conflict should soon be brought to an end. Marco Rubio said as much again on Friday during his visit to France. The Secretary of State said it was a question of weeks, not months. Markets are becoming less and less convinced. Above all, they are increasingly doubtful that Donald Trump can simply call time on the conflict whenever he chooses.

To see why, it is worth looking back over the past week. A week ago, Donald Trump was threatening to strike Iranian energy sites. Then, on Monday lunchtime, he wrong-footed everyone by announcing that talks with Iran were under way. He suspended his threats for five days. On Thursday, he pushed the deadline back again, this time to 6 April, to give negotiations more time. Markets welcomed Monday's announcement. Thursday's extension had far less impact. The main indices finished the session at their lows, and the sell-off continued on Friday. By the end of the week, the VIX had climbed above 30. Israel, meanwhile, is not bound by Washington's pledge, and strikes have continued, particularly against Iranian energy assets. Iran has continued to retaliate as well.

From the market's point of view, Donald Trump removed the immediate risk of further escalation last Monday, and that was taken as good news. But giving negotiations more time now means prolonging the conflict. Every extra day adds to the economic cost. All the more so because the war is widening. Over the weekend, Yemen's Houthis joined the fray, launching missiles and drones towards Israel.

Why does that matter? Because they have the capacity to disrupt shipping in the Red Sea, as they have done before. That route is even more important now that the Strait of Hormuz is no longer passable. To take one concrete example, the pipeline that allows Saudi Arabia to export crude via the Red Sea is currently running at full capacity, or 7 million barrels a day, according to Bloomberg.

Against that backdrop, oil is relatively calm this morning. Brent is trading around $108 a barrel, while WTI is changing hands near $101. In an interview with the Financial Times, Donald Trump said the United States could "seize Iranian oil". He said he was considering taking Kharg Island, the country's main export terminal. That comes as the US continues to build up its military presence in the region. Over the weekend, The Washington Post reported that the Pentagon was preparing for several weeks of ground operations in Iran. Such a scenario would fundamentally change the nature of the conflict, which for now has largely been fought from the air.

This morning, those fears are being offset, at least to a degree, by hopes of a negotiated settlement. Overnight, Donald Trump said Iran's new leaders were being "very reasonable" and that he was convinced he could secure a deal. Pakistan, Egypt, Saudi Arabia and Turkey are pressing ahead with their own diplomatic push. The four countries met over the weekend in an attempt to find a formula that could bring the United States and Iran to a compromise.

On the macro front, attention this week will focus on eurozone inflation, a release likely to bear the marks of the conflict in Iran. In the US, investors will be watching retail sales and, above all, Friday's jobs report. Last month's report showed 92,000 job losses. More broadly, the US economy has shed jobs in five of the past nine months. That leaves the Fed in an awkward position, caught between a labour market showing signs of strain and inflation that is likely to head higher again. Friday will be unusual, however, because markets will then shut for three or four days over the Easter weekend. Wall Street will be open on Monday, unlike most European markets. Western equities will therefore not react directly to the figures.

Elsewhere in the news:

  • Ukraine signed defence agreements on Saturday with Qatar and the United Arab Emirates after President Zelensky's visit to both countries.
  • In Japan, the central bank will have to confront speculation against the yen.
  • Aluminium has resumed its upward march after a double Iranian strike on production sites in the Middle East.

In Asia-Pacific trading, Japan and South Korea are down about 3%. Losses are more modest in India, down 1%, and in Australia, down 0.7%. Chinese markets are down 0.5% on the mainland and 1.1% in Hong Kong. US futures are edging slightly higher, while Europe is struggling for direction at the start of the week. With the VIX above 30, a relatively rare occurrence, the risk of violent moves in equity indices remains very real.

Today's economic highlights:

On today's agenda: Housing starts in Japan; KOF leading indicators in Switzerland; in the United Kingdom, BoE consumer credit, mortgage approvals, and mortgage lending; economic sentiment in the Euro Area; business confidence in Spain; in Germany, preliminary monthly and yearly inflation rates; in the United States, the Dallas Fed manufacturing index, Fed Chair Powell's speech, and Williams' speech. See the full calendar here.

  • GBP / USD: US$1.33
  • Gold: US$4,520.88
  • Crude Oil (BRENT): US$107.78
  • United States 10 years: 4.39%
  • BITCOIN: US$67,514.8

In corporate news:

  • Rio Tinto resumed operations at three of its four Pilbara iron ore port terminals after the impact of tropical cyclone Narelle, with shipment guidance for 2026 remaining unchanged.
  • European airlines likely exceeded the 2% green jet fuel mandate for 2025, marking significant progress in sustainable aviation fuel adoption.
  • HSBC issued $130 million in 5.48% fixed-rate notes due 2036 under its debt issuance program.
  • Aluminum companies (Norsk Hydro, Glencore, Rio Tinto, etc.) could find themselves in the spotlight following the strikes on industrial sites in the Gulf.
  • Raiffeisen is set to spend €591 million to acquire BBVA’s Romanian unit, Garanti.
  • Allwyn and Flutter are reportedly among the companies interested in Spanish gambling operator Codere, valued at $2.3 billion, whose digital subsidiary is listed on the Nasdaq (Codere Online).
  • Blackstone is in talks to acquire British aerospace equipment manufacturer Senior, which is already in discussions with Advent.
  • AP Moller Maersk announces a 48-hour suspension of operations following a port security incident in Oman.
  • Idorsia publishes the results of the Phase II study on daridorexant for the treatment of pediatric insomnia.
  • Atlantic Sapphire secures a $10 million bridge loan.
  • Caterpillar and Deere saw their shares fall on Friday after Donald Trump demanded lower tractor prices.
  • Merck & Co announced that Winrevair met its primary endpoint in the Phase II Cadence trial.
  • Eli Lilly is set to sign a $2 billion deal with Hong Kong-based biotech firm Insilico Medicine for AI-driven drug development, according to the FT. Additionally, the U.S. pharmaceutical company is reportedly making a resumption of its investments in the UK contingent on an increase in NHS funding.
  • Meta is set to unveil two new models of Ray-Ban (EssilorLuxottica) smart glasses this week designed for people who wear prescription lenses, according to Bloomberg.

See more news from UK listed companies here

Analyst Recommendations:

  • Compass Group Plc: BNP Paribas upgrades to neutral from underperform and reduces the target price from GBX 2410 to GBX 2150.
  • Standard Life Plc: RBC Capital maintains its outperform rating and reduces the target price from GBX 815 to GBX 800.
  • Carnival Corporation & Plc: Bernstein maintains its market perform recommendation and reduces the target price from GBX 2448.83 to GBX 2153.25.
  • Kingfisher Plc: RBC Capital maintains its outperform recommendation and reduces the target price from GBX 375 to GBX 360.
  • Intercontinental Hotels Group Plc: Barclays maintains its overweight recommendation and reduces the target price from USD 156 to USD 154.
  • Entain Plc: Morgan Stanley maintains its overweight recommendation and reduces the target price from GBX 1150 to GBX 1050.
  • Burford Capital Limited: Deutsche Bank maintains its buy recommendation and reduces the target price from USD 15 to USD 7.
  • Segro Plc: Barclays maintains its underweight recommendation and raises the target price from GBP 5.50 to GBP 6.25.
  • Molten Ventures Vct Plc: Canaccord Genuity maintains its buy recommendation and raises the target price from CAD 100 to CAD 105.
  • Burberry Group Plc: UBS maintains its buy recommendation and reduces the target price from GBX 1570 to GBX 1410.
  • Reckitt Benckiser Group Plc: HSBC maintains its buy recommendation and reduces the target price from GBP 65.001 to GBP 64.
  • Astrazeneca Plc: HSBC maintains its buy recommendation and raises the target price from GBP 170.50 to GBP 172.
  • Wise Plc: Goldman Sachs maintains its buy recommendation and reduces the target price from GBX 1500 to GBX 1400.
  • Londonmetric Property Plc: Goldman Sachs maintains its neutral recommendation and reduces the target price from GBX 210 to GBX 190.