Market Matters – New highs, a closed strait & the next moves for Iran…

• Global risk assets advanced despite the continued Strait of Hormuz stalemate, with Asia leading performance. MSCI AC Asia ex Japan rose around 7.0%, Emerging Markets gained 6.2%, China added roughly 3.1%, Japan 2.8%, and the S&P 500 rose 2.4% to a fresh all-time high. Europe ex UK was modestly positive, while the FTSE 100 lagged at around -1.2%; bonds were mildly positive.
• Markets are treating the Iran shock as manageable for now, but that assumption remains central to the constructive case. Trump’s proposal appears focused on reopening Hormuz first and deferring wider nuclear issues, yet Iran has an incentive to move slowly, while Brent remains around $100, suggesting only partial confidence in de-escalation. The key risk is that investors are pricing a temporary disruption while Iran may view Hormuz as a longer-term strategic lever.
• The US continues to absorb the shock better than most regions. April payrolls rose by 115,000 and unemployment held at 4.3%, allowing the Fed to remain patient, while hiring outside healthcare and data-centre-related demand point to ongoing economic resilience. Beneath the surface, however, consumer conditions are weakening: Michigan sentiment fell to a record low, petrol moved above $4.50 per gallon, and lower-income households are increasingly exposed to fuel, food and borrowing-cost pressure.
• Equity resilience is being underwritten by earnings and by a broadening AI investment cycle rather than by valuation expansion alone. Reporting season has been strong, aggregate earnings expectations have been revised materially higher, and forward estimates for 2026 and 2027 continue to rise. At the same time, AI leadership is broadening beyond hyperscalers into semiconductors, memory, networking, storage, photonics, cloud and power infrastructure, helping explain the outperformance of Korea, Taiwan and parts of emerging markets.
• Regionally, the UK and Europe remain more fragile. In the UK, political pressure on Starmer has not yet become a market event, but the combination of higher fuel prices, soft growth and constrained monetary flexibility leaves gilts vulnerable if fiscal discipline weakens. Europe remains the most exposed developed market to the energy shock, with the clearest stagflation risk if oil stays elevated.

Near term, investors should focus on US CPI, Iran’s response to the Hormuz proposal, the Trump-Xi meeting, and whether AI hardware leadership in Asia and US semiconductors can continue to validate the rally.