Daily Observation 2026-03-31

Note

The Middle East situation remains highly tense, with security concerns surrounding the Strait of Hormuz and Red Sea shipping routes becoming a focal point for global attention. Donald Trump warned that if Tehran does not reopen the Strait of Hormuz, the United States will take action against Iran’s energy infrastructure. Iran responded that the U.S. proposed peace plan is “unrealistic” and fired multiple rounds of missiles toward Israel. Meanwhile, the Israeli military successfully intercepted drone attacks originating from Yemen, while Hezbollah continued launching rockets toward Israel. Actions by Yemen’s Houthis have further heightened safety risks for shipping through the Bab el-Mandeb Strait.

On the U.S. side, two officials revealed that elements of the U.S. Army’s 82nd Airborne Division have begun deploying to the Middle East. The White House stated that U.S.-Iran negotiations are still ongoing, with hopes of making progress before the April 6 deadline.

Federal Reserve Chairman Jerome Powell indicated that the Fed will continue to monitor the impact of Middle East developments on inflation and the economy at this stage. He emphasized that the labor market and inflation remain in a mutually constraining relationship, and future policy decisions will continue to depend heavily on incoming data.

Financial markets are currently being influenced through three main channels: risk premium, energy expectations, and policy path. First, uncertainty over the Strait of Hormuz and Red Sea shipping routes has led to a repricing of global energy transportation stability. Markets have increased the weight assigned to energy supply disruption risks, pushing up risk premiums for energy-related assets. Second, the spread of military and security risks—including actions by Iran, Israel, the Houthis, and Hezbollah—has raised the possibility of regional conflict spillover. This uncertainty has strengthened demand for defensive attributes in global assets, prompting capital reallocation toward low-risk and safe-haven assets. Third, Powell’s statement about “observing developments before reassessing inflation impacts” has made the monetary policy path more dependent in the short term on the pace of exogenous shocks. Market adjustments to interest rate expectations will therefore hinge more on the persistence of energy prices and geopolitical conflict rather than linear changes in single macroeconomic data points.

Under this framework, major assets are showing clear differentiation in their reactions. In equity markets, the S&P 500 is particularly sensitive to rising uncertainty. When energy prices and risk premiums rise simultaneously, higher discount rates and cost pressures on corporate earnings make the index more vulnerable to downside pressure, with defensive sectors relatively outperforming. In the foreign exchange market, the U.S. Dollar Index (DXY) tends to strengthen in phases. In an environment of elevated global risk, the dollar’s liquidity and safe-haven attributes drive capital inflows, even amid U.S. inflation and fiscal constraints. In the rates market, US 10Y Treasury yields tend to decline when global growth concerns intensify, while US 2Y yields remain volatile at elevated levels due to combined inflation and energy shocks, potentially leading to a repricing and distortion of the yield curve. In commodities, both Brent Crude Oil and WTI Crude Oil are highly sensitive to risks in the Strait of Hormuz and Red Sea, with supply disruption risk premiums driving increased price volatility. In precious metals, Gold receives support from safe-haven demand but is simultaneously constrained by movements in real U.S. Treasury yields, resulting in performance that dynamically balances between safe-haven support and rate suppression.

Overall, the current Middle East tensions have made “rising risk premiums + energy constraints + interest rate expectation repricing” the dominant framework for market pricing. In the short term, asset pricing will revolve more around the evolution of geopolitical variables. Investors are advised to closely monitor actual shipping activity in the Strait of Hormuz and Bab el-Mandeb Strait, the progress of U.S.-Iran negotiations, and the Fed’s assessment of secondary inflationary effects from energy prices.

Market

	CLOSE
SPX	6343.72
DXY	100.491
US10Y	4.350%
US02Y	3.836%
UKOIL	108.88
USOIL	105
GOLD	4513.000

2026-03-30T09:00Z/2026-03-30T23:00Z