[Market Brief] Asset re-pricing amid Middle East conflict, stocks and bonds have reached critical levels!

What we want you to know is:

Last week, even though Trump said negotiations had made progress, traffic through the Strait of Hormuz was effectively close to halted, and there was no letup in military actions by the U.S.-led coalition. WTI crude oil pushed above $100 at one point. Meanwhile, U.S. stocks remained under pressure as interest rates and inflation expectations heated up, and the S&P 500 hit a new low since August 2025. Overall, the market has shifted from simply reacting to geopolitical conflict to repricing the chain reaction of “energy shock → inflation → interest rates.” Near-term market volatility has clearly amplified. In addition to updating you on developments in the U.S.-Iran war, I also provide an in-depth analysis of why U.S. Treasury yields and the U.S.-China talks will become key items to watch for the Middle East situation.

Key points in this article:

2. Ongoing restrictions on the Strait of Hormuz have disrupted crude oil supply; oil prices have climbed above the $100 level, driving inflation and interest-rate expectations higher in tandem and expanding market volatility again.

3. We will monitor subsequent impacts from four angles—inflation, interest rates, valuation, and fundamentals—to judge whether the market is shifting from liquidity-driven adjustments to weakening fundamentals.

4. Two major signals have appeared, and this will be the key to determining whether the Middle East situation will stop deteriorating further! The two signals are: U.S. Treasury yields breaking through “Trump’s fatal bottom line,” and U.S.-China talks being held in May.

Given that the U.S.-Iran war has continued to rage on, we will consolidate the relevant analysis here under this category: Blog—U.S.-Iran War!

1. Middle East conflict drags on into the fifth week: a roundup of the latest developments in geopolitics, energy, and U.S.-China

Below is a summary of the latest international developments after the Middle East conflict entered its fifth week:

The U.S.-Israel-Iran geopolitical situation is back and forth, showing a “war-to-force-talks” dual-track strategy

On March 23, Trump claimed that he had a “very good and productive” conversation with Iran, instructed the Department of Defense to delay a military strike by 5 days, and then on March 26, Trump again announced an additional delay of 10 days (to April 6). At the same time, the U.S. is also using Pakistan as an intermediary to convey to Iran a peace-protocol framework with “15-point ceasefire conditions,” indicating that Trump is trying to soothe market sentiment.

However, in actual military operations, the U.S.-Israel coalition has not cooled down. This includes the deployment of the USS Tripoli and USS Boxer arriving in the Middle East, with plans to send elite ground forces to seize Halk Island or key infrastructure. Israel Defense Forces’ firepower has also not softened over the past week; it has continued to strike military bases, missile factories, and heavy-water reactor facilities, and on the 30th it claimed it began striking “the entire Tehran” military facilities.

In addition, there are also divisions within Iran. Although it had previously been reported that Iran proposed six ceasefire conditions—covering ceasefire guarantees, closing U.S. bases in the Middle East, war reparations, ending the regional fronts, reshaping the legal system for the strait, and prosecuting / extraditing anti-Iran media forces—most public remarks denied that any dialogue or negotiations are currently taking place. The IRGC, meanwhile, remains hawkish, carrying out daily drone attacks on Gulf neighboring countries via more than 30 drones, including the Kuwait International Airport, the Port of Salalah in Oman, Bahrain Aluminum, and the Haifa oil refinery in Israel.

Strait of Hormuz monitoring: shipping remains sluggish and is still constrained by Iran—watching Saudi exits via Red Sea detours

Last week, the number of vessels transiting the Persian Gulf stayed at less than 5% of normal levels. During the weekend, although a small number of Saudi crude tankers headed for Pakistan, and on Saturday seven ships left the Persian Gulf (two LPG vessels and four bulk carriers), Tankertrackers.com estimated that in the 23 days prior to March, the average daily crude oil flow was about 1.6 million barrels. Compared with the pre-war volume of roughly 20 million barrels per day (15 million barrels of crude plus 5 million barrels of refined products), it is still low.

At present, Iran still has…

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                                            What impact does restricted passage through the Strait of Hormuz have on crude oil supply?
                                        
                                        

                                            💡Restricted passage through the Strait of Hormuz limits crude oil supply. The number of vessels transiting the Persian Gulf stays at less than 5% of normal levels, pushing oil prices above the $100 level and, in turn, driving inflation and interest-rate expectations higher in tandem—expanding market volatility again.
                                        

                                    

                                
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                                            How will a rise in oil prices affect inflation and interest-rate expectations?
                                        
                                        

                                            💡A rise in oil prices will lift inflation and interest-rate expectations. It will push the U.S. breakeven inflation rate to a new high since 2022, and futures implied policy rates show that Fed rate-cut room within the year is being squeezed—possibly even pricing in expectations for rate hikes starting in the second half.
                                        

                                    

                                
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                                            Does expanding short-term market volatility mean liquidity-driven adjustments are turning into weaker fundamentals?
                                        
                                        

                                            💡When short-term market volatility expands, we need to look at four areas: inflation, interest rates, valuation, and fundamentals. If oil prices remain above $100 for more than a quarter, there is a high chance that the shock will shift from a supply shock to a demand shock, potentially causing the market to move from liquidity-driven adjustments toward weakening fundamentals.
                                        

                                    

                                
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                                            Is there disagreement within Iran regarding ceasefire talks?
                                        
                                        

                                            💡There is disagreement within Iran regarding ceasefire negotiations. Although ceasefire conditions had previously been reported, most public remarks deny that dialogue is taking place, while the IRGC remains hawkish and continues to carry out drone attacks on Gulf neighboring countries.
                                        

                                    

                                
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                                            Can Saudi Arabia’s Red Sea oil export volumes ease supply tightness?
                                        
                                        

                                            💡Saudi Arabia’s Red Sea Yanbu oil export volume has reached an average of 4.4 million barrels per day, with efforts to reach 5 million barrels—potentially easing some supply tightness. But you still need to watch for the risk that Yemen’s Houthi forces joining the conflict could threaten Red Sea merchant shipping.
                                        

                                    

                                
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                                            Why are U.S. Treasury yields becoming a key indicator for Trump’s Middle East policy?
                                        
                                        

                                            💡U.S. Treasury yields have become a key indicator for Trump’s Middle East policy mainly because U.S. debt as a share of GDP is high, leaving less tolerance for fiscal policy to react to changes in interest rates. When the 10-year Treasury yield hits the warning range of 4.4% ~ 4.6%, Trump’s stance will noticeably soften to keep interest rates at a “safe level.”
                                        

                                    

                                
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                                            How will the U.S.-China talks affect the development of the Middle East situation?
                                        
                                        

                                            💡U.S. President Trump will visit China in mid-May. This not only sets a potential time boundary for the Middle East conflict—because if the conflict fails to cool down, the U.S. may face pressure to raise rates. Trump has motivation to stabilize the Middle East situation before his visit, especially ensuring that the Strait of Hormuz resumes normal passage.
                                        

                                    

                                
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                                            How can we measure the impact of the Middle East conflict on inflation, interest rates, and economic fundamentals?
                                        
                                        

                                            💡The impact of the Middle East conflict on inflation, interest rates, and economic fundamentals can be assessed through March CPI data, whether market inflation expectations are anchored, whether demand disruption has occurred, the S&P 500 price-to-earnings ratio and EPS, the MM economic expectation index, recession probability, and the year-over-year growth percentages of EPS across different industries.
                                        

                                    

                                
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                                            How should we judge market reaction after the March CPI data to determine whether expectations are already sufficiently priced in?
                                        
                                        

                                            💡If after the March CPI is released, the market’s decline is limited, it indicates that prior inflation expectations have already been digested in prices and that the market’s reaction to risks over the period is more complete. Conversely, if the market experiences a clear broad-based selloff, it means expectations have not been fully priced in.
                                        

                                    

                                

                
                
                

                

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