[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, despite Trump saying negotiations had made progress, traffic through the Strait of Hormuz was actually close to being cut off in practice. The military actions by the U.S. and allied forces showed no signs of cooling down, pushing WTI crude oil briefly above $100. Meanwhile, U.S. equities continued to come under pressure as interest-rate and inflation-expectation outlooks 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 re-pricing the chain reaction of “energy shock → inflation → interest rates.” In the short term, market volatility has clearly been 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 meeting will become key areas to watch regarding the situation in the Middle East.

Key points of this article:

2. Persistent constraints on the Strait of Hormuz have disrupted crude-oil supply. Oil prices have risen above the $100 level, driving both inflation and interest-rate expectations higher in sync, and expanding market volatility again.

3. The follow-on impact will be assessed from four major perspectives—inflation, interest rates, valuation, and fundamentals—to determine whether the market is moving from corrections driven by liquidity conditions toward weakening fundamentals.

4. Two major signals have already appeared. 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 the “Trump fatal bottom line,” and the U.S.-China meeting taking place in May.

In light of the fact that the U.S.-Iran war is continuing 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—reviewing the latest developments in geopolitics, energy, and the U.S.-China region

Below 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 “wage 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. Then on March 26, Trump once 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-agreement framework of “15 ceasefire conditions,” indicating that Trump is trying to calm market sentiment.

However, the U.S.-Israeli allied forces have not actually cooled down their military operations. This includes the deployment of the USS Tripoli and the USS Boxer arriving in the Middle East, with plans to send elite ground forces to seize Halki Island or key infrastructure. The Israel Defense Forces’ firepower also showed no softening over the past week. They have continued striking military bases, missile factories, and heavy-water reactors, and on the 30th they claimed they began striking military facilities across “all of Tehran.”

In addition, divisions have also emerged within Iran. Previously, it was reported that Iran proposed six ceasefire conditions, including ceasefire guarantees, closing U.S. bases in the Middle East, war reparations, ending the regional battle lines, reshaping the strait’s legal regime, and prosecuting/extraditing anti-Iran media forces. However, in public remarks, most denials suggested there is no dialogue or negotiations underway. The Islamic Revolutionary Guard Corps (IRGC) has remained hawkish, carrying out daily drone attacks on more than 30 Gulf neighboring countries, including the Kuwait International Airport, the Salalah port in Oman, Bahrain Aluminum, and the Israeli Haifa oil refinery.

Strait of Hormuz monitoring: Shipping remains sluggish and still constrained by Iran—closely watching Saudi Red Sea detour export volumes

Last week, the number of vessels passing through the Persian Gulf stayed at less than 5% of normal levels. During the weekend, although some Saudi crude was shipped to Pakistan, and on Saturday seven vessels departed the Persian Gulf (two LPG, four bulk carriers), Tankertrackers.com estimates that the average daily crude oil flow for the 23 days prior to March 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), the figure is still low.

At present, Iran still has…

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                                            What impact does obstruction of Strait of Hormuz traffic have on crude oil supply?
                                        
                                        

                                            💡Obstruction of traffic through the Strait of Hormuz restricts crude oil supply. Shipping volume in the Persian Gulf stays at less than 5% of normal levels, causing oil prices to rise above the $100 threshold. This, in turn, drives inflation and interest-rate expectations upward in sync, and market volatility expands again.
                                        

                                    

                                
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                                            How will rising oil prices affect inflation and interest-rate expectations?
                                        
                                        

                                            💡Rising oil prices will lift inflation and interest-rate expectations. It will push the U.S. break-even inflation rate on Treasuries to the highest level since 2022, and futures-implied policy rates indicate that the Fed’s potential rate-cut room within the year is being squeezed, with even expectations for rate hikes beginning to be priced in from the second half of the year.
                                        

                                    

                                
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                                            Does the expansion of short-term market volatility mean the market is shifting from liquidity-driven corrections to weakening fundamentals?
                                        
                                        

                                            💡When short-term market volatility expands, you 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 probability that the shock could shift from a supply shock to a demand shock. This could cause the market to move from liquidity-driven corrections toward weaker fundamentals.
                                        

                                    

                                
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                                            Are there differences within Iran regarding ceasefire negotiations?
                                        
                                        

                                            💡There are differences within Iran regarding ceasefire negotiations. Although it was previously reported that ceasefire conditions were proposed, most public remarks deny that any dialogue is underway. Meanwhile, the IRGC remains hawkish and continues conducting 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 crude oil export volume from the Yanbu port in the Red Sea has reached an average of 4.4 million barrels per day. It is trying to reach 5 million barrels per day, which could ease some supply tightness. But it is still important to watch for the Yemen Houthi forces potentially participating and creating threats to 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 levels are high as a share of GDP, and fiscal policy has a low tolerance for 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 rates within a safe band.
                                        

                                    

                                
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                                            How will the U.S.-China meeting affect developments in 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 does not cool down soon, the U.S. may face pressure to raise rates. Trump has motivation to stabilize the Middle East situation before his visit, especially to ensure that the Strait of Hormuz restores traffic.
                                        

                                    

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

                                            💡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 destruction has occurred, S&P 500 price-to-earnings ratios and EPS, MM economic expectations index, recession probability, and the year-over-year increase in EPS across each industry.
                                        

                                    

                                
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                                            How can we judge how the market will react after the March CPI data is released—whether expectations are already fully priced in?
                                        
                                        

                                            💡If after March CPI is released the market sell-off is limited, it means prior inflation expectations have already been digested in prices, and the market’s reaction to near-term risks is relatively complete. Conversely, if the market shows a clearly larger drawdown, it means expectations have not been fully reflected yet.
                                        

                                    

                                
                                                

                
                
                

                

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