Middle East

ECB Governing Council member Olli Rehn has explicitly described the recent energy shock as stagflationary, which is not a word central bankers use casually. Stagflation removes the standard policy toolkit: cutting rates to support growth risks worsening inflation; holding rates to control prices risks deepening the slowdown. For the ECB, which had been edging toward further cuts through mid-2026, this framing creates public justification for a pause even as growth data weakens. UK businesses with eurozone exposure should reprice the probability of ECB cuts in H2: a policymaker using the word stagflationary in public is preparing the market for a hold, not preparing the ground for a cut.

The Bank for International Settlements is not given to hyperbole, which makes its warning about AI-driven financial exuberance worth taking seriously. The BIS argument is mechanistic: concentrated capital flows into a narrow cluster of AI infrastructure names inflate asset prices across correlated portfolios, and when those names reprice, the contagion is faster than regulators can track because the interconnection runs through private markets and leveraged structures that sit outside standard disclosure regimes. For UK investors, the relevant constraint is the FCA's current framework for AI-exposed funds, which was written before the current concentration levels existed. The BIS stop-loss is not about AI failing to deliver, it is about the gap between delivery timelines and the valuations already priced in. If even one hyperscaler capex cycle disappoints in the next two quarters, the rerating is disorderly.

An Aramco helicopter came down at a Saudi Arabian port facility. No production disruption has been reported and the incident does not appear to affect oil output or export logistics at this stage.

Trump adviser Massad Boulos has spent months brokering a power-sharing arrangement built around two family networks: the Dbeibehs in the west and the Haftars in the east, with the reported plan installing Ibrahim Dbeibeh as prime minister and 35-year-old Saddam Haftar as president. The April 2026 unified national budget of 190 billion Libyan dinars, approximately $30 billion, is the financial foundation of the arrangement, and the mechanism is straightforward: enough fiscal consolidation to stabilise oil flows, enough political cover to open new blocks to US energy investment. Libya's National Oil Corporation hit approximately 1.43 million barrels per day in early April, a ten-year high, and the Trump administration has publicly endorsed a production target of 3 million bpd. That ambition, if even partially realised, adds to the supply overhang building as Hormuz reopens. UK energy companies with Mediterranean exposure and investors in North African infrastructure should treat this not as a peace process but as an energy asset activation. The political durability of any Dbeibeh-Haftar arrangement is a separate, considerably less optimistic question.

The People's Bank of China has launched new money-market instruments specifically designed to help foreign central banks and sovereign wealth funds hold, invest, and manage renminbi liquidity in China's onshore markets, a step that is less dramatic than it sounds but more strategically significant than the headlines suggest. The mechanism is direct: by lowering the friction for official institutions to park reserves in RMB-denominated instruments, the PBOC is reducing the cost of choosing the yuan over the dollar at the margin, which compounds quietly across reserve portfolios over years rather than quarters. This sits alongside a broader PBOC framework shift away from loan quotas and window guidance toward interest-rate tools and open-market operations, signaling a desire to make Chinese monetary policy more legible to international allocators. The parallel Evergrande liquidation saga and the resulting HK$1 billion PwC compensation scheme are working in the opposite direction on market trust, so Beijing is simultaneously trying to internationalize the currency and clean up the disclosure failures that made its capital markets a liability. For sovereign wealth funds and reserve managers in London and the Gulf, the new tool is worth monitoring as a signal of intent even if immediate allocation changes are unlikely.

Spain welcomed 9.1 million visitors in April, the highest April figure on record, as geopolitical tensions push tourists away from traditional Middle Eastern and Eastern Mediterranean destinations. Tourism Minister Jordi Hereu expects 100 million foreign tourists in 2026 if current trends hold, up from 97 million in 2025. The surge is partly organic growth but significantly driven by demand displacement from regions affected by conflict. Spain now ranks as Europe's leader in international visitor spending at €115.1 billion in 2025, with visitors spending an average of $1,344 versus a European average of $1,068. The government is simultaneously tightening short-term rental rules and shifting toward "quality over quantity" tourism to manage infrastructure pressure and housing affordability concerns. Spain's gain is likely to be sustained as long as Middle Eastern instability persists.

Spot gold extended gains to around $4,585 per ounce as reports of a US-Iran ceasefire extension eased inflation concerns tied to energy supply disruptions. Silver jumped 1.2% to $78.68 while the Bloomberg Dollar Index fell marginally, supporting precious metals. The move reflects reduced geopolitical premium and shifting Fed expectations as oil price risks subside. Gold has traded in a narrow range since its earlier war-related decline, balancing safe-haven demand against prospects of easier policy if growth concerns persist.

Jefferies hired Gideon Volschenk from Standard Chartered to lead its metals and mining investment banking in EMEA, signaling aggressive expansion in energy transition deals. The move comes as global decarbonization drives M&A in copper, nickel, lithium, and rare earths, while mining majors like BHP and Rio Tinto reposition portfolios toward critical minerals. Jefferies often ranks in the top 15 globally for mid-cap M&A and is building sector specialist coverage to compete with bulge bracket banks. Standard Chartered's loss of a senior commodities banker suggests competitive pressure for talent as banks reassess focus between traditional trade finance and pure-play investment banking.

US strikes on Iranian military targets killed yesterday's peace rally in precious metals. Gold held near $4,697 per ounce after Iranian attacks on three Navy destroyers in the Strait of Hormuz escalated the three-month conflict. The metal is down 11 percent since the war began, pressured by inflation fears that keep interest rates elevated. Trump's social media hints at deal proximity have repeatedly moved markets, but the latest violence suggests the Hormuz blockade will drag into summer, keeping energy prices elevated and Fed easing off the table.

Regal Partners reported funds under management surpassing A$20 billion as of September 2025, driven by A$723 million in quarterly net inflows into inflation-sensitive strategies including royalties and tactical opportunities funds. The alternative investment manager's hedge funds reached A$9.9 billion with A$316 million in new client money as institutions seek protection against persistent price pressures. Recent acquisitions of Merricks Capital and Ark Capital Partners expand the platform into commercial real estate debt and hotel opportunities, positioning Regal to capture more of Australia's A$1.3 trillion superannuation pool. Growth accelerated despite leadership changes at VGI Partners following A$17.6 million losses.

Goldman Sachs strategist identifies investment opportunities emerging from Middle East shipping disruptions.

JPMorgan's strategists are telling clients that markets see potential resolution pathways in the Middle East despite yesterday's Strait of Hormuz closure. The bank points to oil futures curves showing backwardation flattening after three months, suggesting traders expect supply disruptions to resolve within 60-90 days rather than become permanent. Equity volatility premiums remain elevated but are no longer accelerating, indicating professional money isn't positioning for sustained conflict.

American and Iranian officials are drafting a framework agreement that could end the year-long Middle East conflict within months, according to sources close to the talks. The deal would freeze Iran's uranium enrichment at current levels in exchange for sanctions relief worth an estimated $90 billion. Oil futures fell 4 percent overnight as traders priced in reduced supply disruption risk. If successful, the agreement would mark the most significant US-Iran diplomatic breakthrough since the 2015 nuclear deal Trump abandoned.

HSBC's chief is warning that Middle East conflict is denting global confidence — which translates to: international money is getting nervous about everything, not just regional risk. Banks see economic sentiment shifts months before politicians admit them, and when Europe's largest bank starts flagging broader confidence issues, it's worth listening. The conflict isn't just about energy prices or shipping routes; it's about whether the post-Cold War stability that underpinned globalisation is actually over. HSBC manages money flows across every major economy — they're not speculating, they're reporting.

New Zealand's central bank held rates at 2.25% but Governor Anna Breman warned of "decisive and timely" increases if core inflation accelerates, with the bank now forecasting annual inflation spiking to 4.2% in June—well above the 3% target ceiling. The Middle East conflict has "materially altered" the outlook, disrupting oil, gas and petrochemical supplies critical to transport and agriculture. The RBNZ cut rates 325 basis points since August 2024 but supply chain disruptions may force a hawkish pivot.

The escalating Iran conflict is draining $600 million per day from Middle East tourism as major aviation hubs process a fraction of their normal 526,000 daily passengers. Over 5,000 flights were cancelled in the conflict's first two days, threatening the region's projected $207 billion in 2026 visitor spending. Tourism Economics models show a short 1-3 week conflict could cut arrivals by 11%, while a two-month war could slash 27% and cost $56 billion. The sector's recovery potential depends entirely on swift conflict resolution and coordinated government support.