Middle East conflict continues, global growth and inflation trade-off worsens

Overview

This report examines the key macro charts under the backdrop of the continuing Middle East conflict and assesses the chain effects on energy prices, commodity supply, inflation, central bank policy, the labor market, regional activity, and trade routes. The core conclusion is that the global economy is facing a fresh supply shock just as signs of stabilization were beginning to emerge, and the eventual impact will depend on the nature and duration of the conflict, which remains highly uncertain at the time of the report.

Core views

The report's main views are: first, the surge in energy prices is creating upward pressure on global inflation and broader price formation, with gasoline likely to be the most immediate shock felt by households; second, the growth-inflation trade-off has worsened, with the Middle East facing the most direct impact, Asia potentially seeing higher inflation and shortages of some materials, and Europe facing both higher inflation and weaker growth; third, the room for rate cuts has narrowed, and in the base case most central banks may temporarily stay on hold, but in an adverse scenario they could be forced to raise rates; fourth, trade and transport are being disrupted, with renewed attacks on ships in the Red Sea and changes in transport corridors intensifying supply-chain pressure.

Analysis framework

The report uses a macro chart and cross-regional data observation framework, linking financial market performance, commodity prices, gasoline prices, inflation paths, central bank policy space, fiscal constraints, the US labor market, activity in Europe and emerging markets, and trade and transport channels to assess how the conflict shock transmits from energy and commodity supply into inflation, consumption, policy, and market risk appetite.

Methodology notes

• Macroeconomic scenario analysisGrowth-inflation trade-off

  Growth and inflation trade-offs under a supply shock

  The report treats the Middle East conflict as a new supply shock and focuses on how rising energy prices simultaneously push up inflation while dragging on real consumption and economic activity.

• Policy reaction functionCentral-bank wait-and-see and tightening scenario

  Policy trade-off between higher inflation and unemployment risk

  The report argues that most central banks will wait for more data in the base case, but if the energy shock spreads, they may be forced to tighten; if US unemployment rises sharply, they may shift toward rate cuts.

• Cross-asset macro transmissionEnergy-inflation-risk asset chain

  Transmission of commodity price shocks to markets and the real economy

  The report tracks the conflict shock through market and real-economy indicators such as risk assets, energy prices, gasoline prices, PMI, and consumer activity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Energy and commodities

  Directly affected by the Middle East conflict and transport disruptions

  Strengths

  Supply shocks and a geopolitical risk premium may support prices.

  Weaknesses

  High prices may suppress end demand and could trigger policy interventions such as cuts in fuel taxes.

  Comparison

  Compared with ordinary commodities, energy and region-linked materials are more sensitive to the Middle East conflict.

  Risks

  A de-escalation could lower the risk premium; escalation could bring further shortages and price spikes.

• Global equities and risk assets

  Weighed down by growth downgrades, higher inflation, and policy uncertainty

  Strengths

  If the conflict eases and labor-market weakness drives rate cuts, risk assets could receive temporary support.

  Weaknesses

  The report says risk assets have already sold off globally, with Asian markets also declining.

  Comparison

  Compared with defensive assets, risk assets are more sensitive to growth shocks and the rate path.

  Risks

  Persistently high energy prices, forced central-bank tightening, or weaker consumption may continue to pressure valuations.

• Rates and central bank policy

  Energy-driven inflation reduces room for rate cuts

  Strengths

  If US unemployment rises materially, rate cuts could still become a policy option.

  Weaknesses

  Rising inflation will limit central bank easing room, and Europe could also face tightening pressure in an adverse scenario.

  Comparison

  Compared with a pure growth slowdown, a stagflationary shock makes policy reaction more complex.

  Risks

  Inflation spillover or unanchored expectations could lead to a longer high-rate environment.

• Trade and supply chains

  Red Sea attacks, transport corridor changes, and tariff policy jointly increase disruption

  Strengths

  Trade-route adjustments may create some substitution in transport and local manufacturing opportunities.

  Weaknesses

  Transport costs, delivery times, and supply stability are under pressure.

  Comparison

  Compared with pure financial-market shocks, trade disruption is more likely to affect real production and inventories.

  Risks

  A renewed wave of Red Sea attacks, broader Section 301 investigations, and pharmaceutical tariffs could intensify global trade friction.

Key data

• Report date2026-04-08The report was dated April 8, 2026, and market data are generally as of the April 6, 2026 close.
• Ceasefire periodtwo weeksThe report notes that despite the announced two-week ceasefire, the global economic outlook remains hit by Middle East uncertainty.
• US pharmaceutical tariff100%The United States announced a 100% tariff on patented pharmaceuticals, effective in 120 to 180 days, while generics, drugs planned to be produced in the US, and the EU and others may have exemptions or lower rates.
• Key affected commoditiesEnergy, helium, aluminum, and some chemicalsThe report says these region-linked commodities face price shocks and shortage concerns.
• Key data to watchPMI, business surveys, consumer surveys, US nonfarm payrolls, unemployment rate, Euro area inflationThe report stresses that hard data lag, so survey data and subsequent activity data need to be combined to judge the size of the shock.

Impact & implications

For investment and macro positioning, the report points to a less favorable mix: higher energy and some commodity prices lift inflation, real income and consumption come under pressure, central bank easing room shrinks, fiscal policy is already tight, and risk assets and Asian markets are under strain. If the conflict persists or escalates, inflation stickiness, supply-chain disruptions, trade friction, and policy misjudgment risk could all rise further.

Risks

• The duration and intensity of the Middle East conflict are highly uncertain and could push energy and key material prices even higher.
• The energy-price shock could spread into core inflation and inflation expectations, forcing central banks to tighten policy.
• Squeezed real incomes may weaken consumer spending, and activity data may only fully reflect the shock in the coming months.
• Fiscal policy is already constrained, leaving governments limited room to cushion the shock through fiscal expansion.
• Red Sea transport disruptions, tariff measures, and Section 301 investigations may increase global trade and supply-chain pressure.
• If the US labor market shifts from flat to clearly weakening, the policy path and market expectations could reverse quickly.

What to watch

• Progress in the Middle East conflict and ceasefire arrangements over the coming weeks.
• Energy prices, gasoline prices, and supply conditions for key materials such as helium, aluminum, and some chemicals.
• The US unemployment rate, nonfarm payrolls, and higher-frequency labor-market signals.
• Euro area and global inflation data, especially the transmission of the energy shock into other price components.
• The degree to which PMI, new orders, output, and business and consumer surveys confirm slower activity.
• Policy guidance from the ECB, BoE, Federal Reserve, and other central banks on the inflation and growth shock.
• Red Sea shipping security, changes in key transport corridors, details of US pharmaceutical tariff implementation, and progress on the Section 301 investigation.