Deal or no deal

This has been a week where nobody truly knows what is going on when it comes to the war in Iran. On Monday, United States (US) President, Donald Trump, released a statement walking back the 48-hour hard deadline he had given to Iran to open the Strait of Hormuz the previous Friday, as he called for five days of engagement to discuss ending the war and announced that the US was already in talks with Iran. On Tuesday, President Trump announced that the US sent Iran a 15-point plan, delivered through Pakistan, laying out the US’s conditions to end the war. Iran, on the other hand, denied being in talks and rejected many points in the US’s plan.

Where things stand

The contradictory signals between Washington and Tehran intensified and by Thursday the picture had sharpened considerably – not in favour of a deal. Iran formally rejected the US 15-point ceasefire plan and issued a five-point counteroffer of its own, which includes reparations for the war, guarantees against future strikes and most significantly, Iranian sovereignty over the Strait of Hormuz. That last demand is a non-starter for Washington and effectively signals Tehran’s intent to retain the Strait as a permanent strategic lever.

President Trump, undeterred however, stated on Thursday that Iranian negotiators are “begging” for a deal, while Iran’s foreign minister described the message exchange as Iran responding “with warnings” rather than engaging in any form of negotiation. Both sides, however, are telling very different stories about what is happening and the strikes have not stopped, with Israel delivering a fresh wave of airstrikes on Tehran on Wednesday, despite the exchange of proposals taking place.

The uncertainty around what the real story is has led analysts to speculate on two scenarios and how each will impact the global markets going forward.

The deal scenario

If a ceasefire takes hold and a broader framework gains traction, the market response would be swift across multiple asset classes.

Oil is the most direct transmission mechanism. Brent is currently trading around $104/barrel – up roughly 60% from pre-war levels – and any credible de-escalation signal would unwind a meaningful portion of that risk premium fast. Under a baseline deal scenario, Brent could spike briefly before ending 2026 closer to $70/barrel, as flows through the Strait of Hormuz normalise and the supply disruption premium dissipates. The Strait handles roughly 20% of all globally traded oil and markets are acutely sensitive to any indication of it reopening.

For equities, relief would be broad-based. The S&P 500 has fallen approximately 4.55% over the past month, and easing energy costs alongside reduced inflation pressure would support its recovery, particularly in rate-sensitive sectors that have been repriced sharply.

Gold’s reaction in a deal scenario is more nuanced. Spot gold climbed nearly 2% to $4,558.81/ounce earlier this week as falling oil prices helped temper inflation concerns on reports of ceasefire progress, but the metal remains roughly 17% below its late-January peak. For the rand and emerging market (EM) currencies, more broadly, de-escalation would reduce the oil inflation shock feeding into import costs and current account pressures, reducing those headwinds.

The no-deal scenario

The stakes of a breakdown are substantially higher and the current communication trajectory points in that direction.

Brent crossed the $100/barrel level on 9 March and is hovering around $107/barrel this morning, with commercial traffic through the Strait at a standstill and Gulf storage near capacity. In a prolonged conflict with sustained disruption, oil could remain elevated for an extended period. A tail-risk scenario (high-impact, low-risk event that can result in high financial losses) involving Iranian strikes on regional energy infrastructure could push Brent above $130/barrel before markets adapt.

Analysts project US gasoline to reach $3.50/gallon under a persistent high-price scenario – $1 more than before the war – making inflation a structural policy problem rather than a transitory one. That matters enormously for the US Federal Reserve (Fed). With US core Producer Price Index running at 3.6% year-on-year in January and US inflation above target since 2021, any sustained energy price shock will further delay Fed rate cuts and keep the cost of capital elevated.

The US Dollar Index has held firm near 99.50 on safe-haven demand, with rising oil prices further complicating the Fed’s policy path and underpinning the greenback. A stronger dollar for longer is a headwind for EM and South African assets broadly as it tightens financial conditions at the margin and adds pressure to rand-denominated portfolios already navigating global risk aversion.

For gold, the no-deal path is potentially more constructive in the medium term. Many commodity analysts still maintain a year-end 2026 target of $6,000/ounce to $6,300/ounce, both premised on structurally elevated geopolitical tension and inflation sticky enough to keep real rates suppressed. Higher nominal rates complicate the near-term view, as rising bond yields increase the relative appeal of yielding assets over non-yielding bullion, but a prolonged Middle East conflict would likely keep gold’s safe haven appeal alive.

The bottom line

The honest read is that neither side is close to a durable agreement. Washington wants Iran’s nuclear programme dismantled. Tehran will not trade its enrichment rights, its strategic control of the Strait, or its demand for reparations for any ceasefire on US terms. In fact, Iran’s five-point counteroffer – particularly the demand for Hormuz sovereignty – is not a negotiating position; it is a statement of intent.

Markets will continue to trade the headlines and the seesaw price action of the past three weeks as oil falls on ceasefire rumours, then recovers as Tehran rejects proposals, is likely to persist. Until there is verified, direct contact between the two governments and movement on the core issues, the risk premium and volatility will remain alive.

The war continues to knock markets

The week’s key themes:

• Sovereign bond markets continued to sell off globally
• Equity markets across most major regions came under sustained selling pressure
• Crude oil remained the dominant market narrative
• The dollar consolidated its recent recovery

Bonds

Global sovereign bond markets continued to sell off globally as the protracted US-Iran conflict is keeping inflation expectations elevated and is forcing a significant reassessment of central bank trajectories. US Treasuries were among the most heavily pressured, with the 10-year yield climbing to 4.39% – a level last seen in July – while the two-year note, a closer proxy for near-term monetary policy expectations, moved nearly 60 basis points higher to 3.96%. The shift in Fed pricing has been dramatic; markets have moved from anticipating two cuts this year to assigning close to a 50% probability of an outright hike by December, as sustained energy disruption continues to feed through into the Fed’s inflation outlook.

British gilts mirrored this repricing, with the 10-year yield approaching 4.9% and nearing territory not seen in nearly two decades. The Bank of England (BoE) is now expected to deliver between two and three rate increases this year, with a move next month carrying odds of around 70% and a follow-up fully priced by mid-year.

German bunds were similarly pressured, the 10-year yield breaching 3% for the first time in roughly 15 years as European Central Bank (ECB) President, Christine Lagarde, left little ambiguity around the central bank’s willingness to tighten policy at any upcoming meeting should energy-driven inflation persist. Two to three ECB hikes are now embedded in market pricing for the year ahead.

South Africa’s 10-year yield held near 9%, its highest in several months, after the South African Reserve Bank (SARB) opted to leave the repo rate at 6.75%. SARB Governor, Lesetja Kganyago was unambiguous in signalling a more cautious easing path – the bank has reduced its expected cuts for 2026 from two to one, having stress-tested the economy against both a short and an extended version of the Iran conflict, each of which pointed to rates staying higher for longer

Equities

Equity markets across most major regions came under sustained selling pressure as the combination of higher energy costs, rising yields, and the absence of any credible ceasefire framework darkened the global growth outlook. Wall Street bore the brunt of Thursday’s session, with the Nasdaq shedding 2.38% as technology stocks – already sensitive to the rate environment – led the retreat. The S&P 500 lost 1.74% and the Dow gave up 1.01%. Futures edged higher on Friday after President Trump pushed back the deadline for potential strikes on Iranian energy assets by a further 10 days, giving markets a narrow window of relief.

London’s FTSE 100 declined over 1%, reversing two prior sessions of recovery, with losses concentrated in financials, with HSBC, Lloyds, and Barclays each meaningfully lower, as well as in industrials and rate-sensitive names, with Rolls-Royce falling 4%, BAE Systems shedding 2.4%, AstraZeneca declining 1.8% and Rio Tinto dropping 2.3%. Financial services company, 3i Group, was the session’s most notable casualty, falling over 18% despite operationally solid numbers from its Action business. The energy majors stood apart, with BP and Shell both advancing as crude prices remain elevated.

In Europe, the STOXX 50 closed 1.5% lower at 5,566 and the broader STOXX 600 fell 1.1% to 581, with power-intensive industrials, semiconductor names and financial services all retreating sharply – Siemens Energy and Schneider each lost between 4% and 5%, ASML fell 4%, and Santander, BNP Paribas and BBVA each declined between 2% and 3%. Fashion retailer, H&M, added to the gloom with a weak first-quarter sales print.

The JSE All Share Index closed at 112,847, down 1.28% on the day and 12.15% below its level of a month ago, though the index still trades roughly 25.5% ahead of where it stood this time last year.

Commodities

Crude oil remained the dominant market narrative, with Brent pulling back to just below $107/barrel this morning after President Trump’s decision to extend the ceasefire deadline took some immediacy out of the supply risk premium. Despite Friday’s modest pullback, Brent has appreciated roughly 50% since hostilities commenced, reflecting the operational disruption to one of the world’s most critical energy chokepoints. Trump’s comment that Tehran had permitted 10 tankers to transit during the week, coupled with indications from US Treasury Secretary, Scott Bessent, that a shipping insurance facility would be established shortly, offered some reassurance around near-term flow continuity without materially altering the broader supply picture.

Gold’s session yesterday was more complicated. The metal steadied around $4,431/ounce having dropped close to 3% the day before. The selloff reflected a counterintuitive dynamic: the same inflation fears generated by elevated energy prices were simultaneously raising the prospect of central bank tightening, which in turn weighed on non-yielding assets. With the Fed, BoE, and ECB all now facing pressure to hike rather than cut, gold’s traditional safe-haven appeal has been partially offset by the higher opportunity cost of holding it.

Currencies

The dollar consolidated its recent recovery, with the US Dollar Index holding just below the 100 mark after three consecutive sessions of gains. The currency found support from a combination of safe-haven demand, hawkish Fed repricing, and reports that the Pentagon is weighing a deployment of up to 10,000 additional troops to the Middle East, a development that reinforced the sense that the conflict is far from its conclusion.

Sterling weakened toward $1.33/£, reflecting both the deterioration in United Kingdom (UK) consumer sentiment – British Retail Consortium data showed that consumer confidence fell sharply in March – and the paradox of rate hike expectations that signal monetary tightening rather than economic resilience. The pound’s trajectory will remain closely tied to how aggressively the BoE ultimately moves, with between two and three hikes now expected through the year.

The euro struggled to hold above $1.16/€ as investor appetite for European assets deteriorated against the backdrop of unresolved Middle East hostilities. Despite Washington maintaining that Iran is open to negotiations, Tehran’s foreign minister flatly rejected any framework for talks and reiterated demands for formal recognition of Iranian authority over the Strait of Hormuz. Lagarde’s signal that the ECB could raise rates at any upcoming meeting has done little to lift the euro, as markets interpret the prospect of two to three rate hikes this year less as a sign of economic strength and more as a reactive response to an energy-driven inflation shock the eurozone has limited capacity to absorb.

The rand held above the R17.00/$ mark, near its softest level since December last year, as risk appetite remained constrained and the SARB’s updated guidance offered little near-term support. SARB acknowledged that South Africa entered the conflict in a relatively favourable inflation position, with headline Consumer Price Index inflation having reached the 3% midpoint target in February but revised both its 2026 and 2027 inflation forecasts higher in recognition of the pass-through effects of fuel costs and rand weakness. With the rate cut cycle now expected to deliver only a single reduction this year rather than two, the currency is unlikely to find meaningful support from the interest rate differential in the months ahead.

All information is correct at the time of writing.