[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 nearly at a standstill in practice. There was no letup in U.S.-and-allied military actions; that pushed WTI crude oil briefly above $100. Meanwhile, U.S. stocks stayed under pressure as interest rates and inflation expectations heated up, and the S&P 500 hit its lowest level since August 2025. Overall, the market has shifted from viewing this as a purely geopolitical conflict to repricing the chain reaction of “energy shock → inflation → interest rates.” Short-term market volatility has clearly amplified. In addition to updating you on developments in the U.S.-Iran war, I also provide a deep analysis of why U.S. Treasury yields and the U.S.-China talks will become key focal points to watch in the Middle East situation.

Key points of this article:

2. Ongoing constraints on the Strait of Hormuz are disrupting crude oil supply; oil prices are moving above the $100 level, driving inflation and rate expectations to rise in sync and expanding market volatility again.

3. Follow-up impacts will be assessed from four dimensions: inflation, interest rates, valuations, and fundamentals, to determine whether the market shifts from fund-flow adjustments to weakening fundamentals.

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

Given that the U.S.-Iran war continues to flare up, we will consolidate the related analysis under this category: Blog—U.S.-Iran War!

I. Middle East conflict drags on into its fifth week—reviewing the latest developments in geopolitics, energy, and U.S.-China

The following is a roundup of the latest changes in the international situation after the Middle East conflict entered its fifth week:

U.S.-Israeli-Iran geopolitical situation fluctuates—showing a dual-track strategy of “forcing negotiation with war”

On March 23, Trump claimed he had a “very good and productive” dialogue 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 of “15 ceasefire conditions,” showing Trump is trying to calm market sentiment.

However, the U.S.-Israeli coalition’s actual military actions have not cooled down. This includes U.S. forces deploying the “USS Tripoli” and the “USS Boxer” to the Middle East, with plans to send elite ground forces to seize Halk Island or key infrastructure. In the past week, the Israel Defense Forces’ firepower has also not softened: it has continued to strike military bases, missile factories, and heavy-water reactors, and on the 30th it claimed it began striking military facilities across “all of Tehran.”

In addition, there are also divisions within Iran’s internal stance. While rumors previously indicated Iran proposed six ceasefire conditions—including guarantees of ceasefire, closing U.S. bases in the Middle East, war reparations, ending regional fronts, reshaping the legal regime of the strait, and prosecuting/extraditing anti-Iran media forces—most public remarks deny that any dialogue or negotiations are underway. The Islamic Revolutionary Guard Corps (IRGC), meanwhile, stays hawkish, conducting daily drone attacks on Gulf neighboring countries through more than 30 unmanned aerial vehicles, including attacks on Kuwait International Airport, the Salalah port of Oman, Bahrain Aluminium, and the Israeli Haifa oil refinery.

Strait of Hormuz monitoring: Shipping remains sluggish and still constrained by Iran—keeping a close watch on Saudi Red Sea detour export volumes

Last week, vessel transits in the Persian Gulf remained at less than 5% of normal levels. During the weekend, although some Saudi crude oil moved toward Pakistan, and on Saturday seven vessels left the Persian Gulf (two LPG, four bulk carriers), Tankertrackers.com estimates that over the 23 days prior to March, the average daily crude oil flow was about 1.6 million barrels. Compared with pre-war daily volumes of roughly 20 million barrels (15 million barrels of crude oil + 5 million barrels of refined products), it remains low.

At present, Iran still exerts control over…

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                                            How does the disruption of transit through the Strait of Hormuz affect crude oil supply?
                                        
                                        

                                            💡Disruption of transit through the Strait of Hormuz limits crude oil supply. Vessel traffic in the Persian Gulf is only maintained at less than 5% of normal levels, causing oil prices to move above the $100 mark, which in turn drives inflation and rate expectations to rise in tandem and expands market volatility again.
                                        

                                    

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

                                            💡A rise in oil prices will push up inflation and rate expectations. It will cause the U.S. breakeven inflation rate to reach a new high since 2022, and futures-implied policy rates indicate that the Fed’s potential rate cuts this year are being squeezed, with even expectations for rate hikes starting to be priced in from the second half of the year.
                                        

                                    

                                
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                                            Does increased short-term market volatility mean fund flows are shifting away from supporting the market and turning into weakening fundamentals?
                                        
                                        

                                            💡When short-term volatility increases, you need to observe four areas: inflation, interest rates, valuations, and fundamentals. If oil prices stay above $100 for more than a quarter, the high likelihood is that the shock will shift from a supply shock to a demand shock, which may cause the market to move from fund-flow adjustments to weakening fundamentals.
                                        

                                    

                                
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                                            Are there divisions within Iran regarding ceasefire negotiations?
                                        
                                        

                                            💡There are divisions within Iran regarding ceasefire negotiations. Although ceasefire conditions were previously rumored, most public remarks deny that dialogue is underway. The IRGC, however, stays hawkish and continues to carry out drone attacks on Gulf neighboring countries.
                                        

                                    

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

                                            💡Saudi Arabia’s crude oil export volume from the Yanbu port in the Red Sea has already reached an average of 4.4 million barrels per day, and it is pushing to reach 5 million barrels per day—potentially easing some supply tightness. However, you still need to watch out for the Yemeni Houthis’ involvement, which could pose threats to merchant shipping in the Red Sea.
                                        

                                    

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

                                            💡U.S. Treasury yields have become a key indicator for Trump to set Middle East policy. The main reason is that U.S. debt is at a high level relative to GDP, so the government’s tolerance for changes in interest rates is low. When the 10-year Treasury yield touches the warning range of 4.4% ~ 4.6%, Trump’s stance will clearly soften in order to keep rates in a safe tier.
                                        

                                    

                                
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                                            How will U.S. and 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 fighting does not cool down in time, the U.S. may face upward pressure on rate hikes. Trump has a motive to stabilize the Middle East situation before his visit, especially to ensure that the Strait of Hormuz resumes normal transit.
                                        

                                    

                                
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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 3-month CPI data, whether market inflation expectations are anchored, whether demand destruction has occurred, S&P 500 P/E and EPS, MM economic expectation index, recession probability, and the year-over-year increase proportion of industry EPS.
                                        

                                    

                                
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                                            After the March CPI data is released, how should we judge whether expectations have been fully priced in?
                                        
                                        

                                            💡If after the March CPI is released the market drawdown is limited, it means prior inflation expectations have already been digested in prices and the market’s response to periodic risks is fairly complete. Conversely, if the market sees a clear worsening and selloff, it means expectations have not been fully priced in.
                                        

                                    

                                

                
                
                

                

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