Trump to ‘demolish’ Iran – comment

Daniela Hathorn, Senior Market Analyst, Capital.com

“Markets are once again on edge as the US–Iran conflict enters a critical phase, with investors effectively trading against another countdown clock set by the Trump administration. The situation has evolved into a near-term binary outcome: either escalation through direct strikes on Iranian infrastructure, or a last-minute de-escalation that could trigger a sharp reversal in risk assets. For now, the absence of a clear path forward is keeping markets volatile and indecisive.

Recent developments suggest that tensions remain high. Despite intermittent headlines hinting at negotiations or potential off-ramps, rhetoric from Washington has remained aggressive, while Iran continues to hold firm on its position, particularly around control of the Strait of Hormuz. That chokepoint remains the central issue in the conflict, and neither side appears willing to concede easily. While escalation would be damaging for both, the strategic incentives are misaligned: the US is trying to restore stability and energy flows, while Iran is leveraging disruption as a deterrent. That dynamic keeps the risk of further escalation elevated.

Market behaviour reflects this uncertainty. Oil prices remain elevated, embedding a persistent geopolitical risk premium tied to potential supply disruption. The US dollar and yields have also been supported, reflecting tighter financial conditions and inflation concerns. Meanwhile, equities have shown resilience, but that appears more driven by positioning and technical factors, including thin liquidity conditions around the Easter period, than by genuine optimism about the outlook. The stability in stocks may mask a degree of complacency, especially given the magnitude of the risks.

Meanwhile, economic data is starting to reflect the strain. The latest ISM services print showed weaker-than-expected activity alongside rising price pressures, reinforcing concerns about a stagflationary dynamic: slower growth combined with higher inflation. With CPI data due in the coming days expected to show a pickup in headline inflation, markets are also reassessing the Federal Reserve’s ability to ease policy in the near term. In essence, markets are stuck between two narratives: hope for de-escalation and fear of a more disruptive phase of the conflict. Until there is greater clarity volatility is likely to remain elevated, with asset prices continuing to react sharply to each new headline.”