Stagflation trading returns! The market was awakened by a single remark from Trump: Stop the illusions, the war won't end so quickly!

President Trump’s nationwide televised address on Wednesday night in U.S. Eastern Time has shattered investors’ expectations that the Middle East war is about to wind down. The market shifted gears quickly: stocks fell, oil prices surged, the U.S. dollar strengthened, and risk-averse sentiment returned in full force.

According to Xinhua News Agency, in the speech Trump said the United States would launch a more forceful offensive against Iran in the “next two to three weeks,” and vowed to “bomb Iran back to the Stone Age.” While he claimed that U.S. forces are “about to” complete all military objectives, he did not provide any specific timetable for ending the conflict.

Markets had originally expected Trump’s nationwide televised address to send signals of de-escalation. Instead, it brought an escalating threat. Institutions including Nomura and NAB all pointed out that the speech did not issue any clear de-escalation signals; the situation involving a blockade of the Strait of Hormuz is unlikely to be resolved in the near term, and global oil-price pressure at high levels may persist until late April. Trump’s remarks were “indeed disappointing.”

After Trump’s address, Brent crude futures jumped about 7%, at one point touching $108 per barrel. U.S. stock index futures fell more than 1%, European stocks dropped more than 2%, and major Asia-Pacific benchmarks were nearly all in the green.

Hope dashed: the market suffers a “major disappointment”

Earlier this week, Trump had signaled the possibility of ending the conflict as soon as possible, driving a rise in global equities and prompting the U.S. dollar to pull back from recent highs. Investors took advantage of this window to add to risk assets, betting that the fighting would soon be calmed.

However, the logic was completely undermined by the Wednesday television address.

“Nothing too new came out of the speech itself; the key point is that he confirmed there will still be another two to three weeks of fighting,” said Mike Houlahan, director at Auckland Electus Financial Ltd. “That pushes the time window for ending the conflict further out.” He added that whether this extension will create additional pressure for the fuel supply chain will be the next issue worth watching.

The strategy team at Westpac Bank said the speech disrupted trades premised on downgrading the situation. They also noted:

“If there’s any difference, it’s that the speech has once again raised the threat of a more ‘decisive final strike’ before a unilateral end to the conflict.”

On the eve of the Easter holiday, traders who had added positions quickly closed out and exited, and market volatility intensified as a result.

Ceasefire prospects are unclear, and positions across the board remain locked

After the speech, there were no signs of any substantive easing in the diplomatic situation.

CCTV International News cited reports from Iran’s Tasnim news agency, saying Iran’s armed forces issued a warning that it would launch a “more destructive, larger-scale” counterattack. An official Iranian statement said the war would continue until the enemy is met with “lasting regret and surrender.”

At the same time, the Israeli military reported that it detected missiles coming from Iran’s direction, and on the same day Saudi Arabia and Abu Dhabi intercepted incoming drones or missiles. The U.S. Embassy in Baghdad has urged its citizens to leave Iraq.

At the diplomatic mediation level, Reuters cited Pakistani security sources as saying that Islamabad has proposed a temporary ceasefire plan, but it has not yet received any response from either side.

An insider revealed that the most recent time U.S. Vice President JD Vance passed along information via a Pakistani intermediary was on Tuesday of this week, indicating that Trump would accept a ceasefire plan under certain conditions. However, a senior Iranian official told Reuters that Tehran insists on obtaining a guaranteed ceasefire agreement.

Analysts noted that if Trump were to end the war unilaterally without reaching an agreement, Iran may instead benefit from it with a tougher posture and larger bargaining chips.

Energy crisis remains unresolved, and the risk of stagflation rises

What disappointed the market most in Trump’s speech was his complete omission of any plan to reopen the Strait of Hormuz. This critical waterway—carrying about one-fifth of the world’s oil and liquefied natural gas transport—has triggered one of the most severe global energy supply shocks in history since Iran implemented its blockade.

Matt Simpson, a senior market analyst at Brisbane Stonex, said: “With the Strait of Hormuz essentially shut down but with no plan to reopen it, oil prices will stay elevated for the long term. The market will have to face a ‘new round of inflation.’”

The combination of high oil prices and slowing economic growth is fueling the risk of stagflation. After Trump’s speech, the yield on the 10-year U.S. Treasury rose by 5 basis points to 4.376%, reflecting market concerns about inflation prospects compressing the room for accommodative monetary policy.

New Bank of Japan board member Toichiro Asada also warned this week that the Iran war could leave Japan facing stagflation risks that would be difficult to address with monetary policy. Chesler said:

“We are entering a stagflation environment where low growth and high inflation expectations coexist.”

Will the war last until June?

Amid multiple layers of uncertainty, analysts generally expect the market to continue a risk-averse posture in the near term.

Carol Kong, a monetary strategist at the Commonwealth Bank of Australia, said, “Given our expectation that the war will last at least until June, the dollar is fully capable of strengthening further.”

She also noted that, “It’s indeed hard to be optimistic about where the war is headed, because after all it’s only Israel and Iran that are the other two parties to the conflict—not just the United States.”

Oil and the dollar are viewed by analysts as the most supported assets in the near term, while risk assets will continue to face pressure until the situation shows a clear turning point. For now, the most crucial question the market is waiting for—when the war will end—still has no answer.

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