Renewed Move Out of Riskier Assets on Mideast Conflict Fears
March 26, 2026
The Middle Eastern war may be about to become much fiercer. President Trump’s plea for Iran to accept a deal continues to be rebuffed, and the red-line demands of each side are miles apart. Meanwhile, Israel claims to have killed another top Iranian official, this time the naval commander Alireza Tangsiri, who has been overseeing the successful shutdown of most shipping traffic through the Strait of Hormuz. Also, a fresh Economic Outlook from the OECD has revised projected 2026 inflation forecasts sharply above ones issued three months ago. On the central banking front, markets are adjusting their interest rate assumptions upward, the Bank of Norway changed its forward guidance to embody one or two 25-basis point hikes later this year, and the Monetary Board of the Central Bank of the Philippines held an unscheduled meeting to discuss supply-driven upside risks to inflation caused by the war.
Asian stock markets had a difficult Thursday session, closing with losses of 3.2% in South Korea, 1.9% in Hong Kong and Indonesia, and 1.1% in China. Japan got off easy with just a 0.3% dip in the Nikkei-225, but a selling wave hit European markets which currently show losses of 1.2-1.7% in the U.K., Germany, France, Italy and Spain. In futures trading prior to the U.S. open, the major barometers currently are down between 0.8% in the case of the DOW to -1.3% in the Russell 2000.
Prices for silver, gold and Bitcoin are presently sporting big declines of 7.2%, 2.9% and 2.7% on the day, while WTI oil’s price has resurged 4.9% to almost $95 per barrel.
The rush into sovereign debt has seen 10-year yields climb today so far by 14 basis points in Brazil and Italy, 11 bps in France and Great Britain, 10 bps in Spain, 8 bps in Germany, 6 bps in Switzerland and five basis points in the U.S. Treasury note.
The aforementioned OECD Economic Outlook has revised projected Group of Twenty inflation in 2026 to 4.0% from a forecast issued in December of 2.8%. The group now calls for inflation this year of 4.2% in the United States, 4.0% in Great Britain, and 2.4% in both Japan and Euroland, up from respective prior forecasts of 3.0%, 2.5%, 2.2% and 2.1%. Projected G20 inflation in 2027 of 2.7% is a bit above the prior estimate, not to mention the 2.0% level widely considered to connote price stability. The new forecast leaves global GDP growth in 2026 unchanged at 2.9% but offers a slight downwardly revised forecast of 3.0% for growth next year. British GDP growth this year is now envisaged at only 0.7% versus 1.2% in the previous OECD Outlook.
The Bank of Norway left its policy rate at 4.0%. That’s only 50 basis points below the 4.5% peak maintained from December 2023 through June 2025. In the wake of the Middle Eastern war that has lifted energy and other commodity prices, plus higher Norwegian inflation prior to this month and officials were expecting to see, Norway’s Monetary and Financial Stability Committee now believes that “a more restrictive monetary policy is needed. The policy rate forecast has been revised up since December and indicates an increase in the policy rate to between 4¼ and 4½% by the end of this year” in order to foster a decline of inflation to 2.0% by 2029. Because the war and its effect on prices and growth is so new and currently fraught with “substantial uncertainty” at this moment, no change in the rate was made at today’s meeting.
On today’s data release menu,
- Consumer confidence in March was reported at a 25-month low in Germany, a 4-month low in France, and a 29-month low in Italy.
- French business confidence slipped in March to a 5-month low of 96.9. That was down from a 31-month high of 99.4 just two months ago and also below the 100 level that represents the data’s long-term mean.
- Dutch GDP grew 1.8% between the final quarters of 2024 and 2025 and also averaged 1.8% last year. The Dutch current account of almost 93 billion euros in 2025 approximated 9% of GDP.
- Spanish GDP climbed 0.8% on quarter and 2.7% on year in 4Q, completing the economy’s fifth straight robust year, with GDP increases of 6.7% in 2021, 6.4% in 2022, 2.5% in 2023, 3.5% in 2024 and 2.8% on average last year.
- Japanese corporate service price inflation of 2.7% in February was at a 3-month high after averaging 3.0% in 2025.
- Icelandic consumer price inflation rose 0.2 percentage points to an 18-month high of 5.4% this month.
- South African producer price inflation slowed to a 7-month low of 1.8% in February from 2.2% in January.
- The M3 stock of money in the euro area was 3.0% above its year-earlier level in February and also posted a 3.0% on-year advance for the December-February period.
- The latest weekly report of U.S. jobless insurance claims continues to counter the presumption that the labor market is on the brink of a recession. New claims last week only totaled 210k, and the prior week’s continuing claims were as low as they have been during the 22 months.
Just in: Like many other recent central bank decisions, today’s unanimous vote at the South African Reserve Bank decided to leave the repo interest rate unchanged at 6.75%. No change had been anticipated even if the Middle East war hadn’t happened. Officials at the bank have been very cautious about lowering their interest rate. CPI inflation was exactly aligned with the 3.0% target last month, yet the repo rate, which crested at 8.25% from May 2023 to September 2024, is still well above inflation’s pace at 6.75%. According to the released statement,
The standard response to a supply shock is to look through first-round effects, which are unavoidable and cannot be stopped by interest rate changes… It is always difficult to assess second-round effects in time. The fact is, we are still only a few weeks into this crisis. The coming months will be crucial for assessing the longer-term inflation consequences. Given current forecasts, we see inflation risks to the upside.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank of Norway, German and French consumer confidence, OECD Outlook, South African Reserve Bank
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