March saw a strong market correction as the United States and Israel launched an attack on Iran on the last day of February, bombing military infrastructure and other targets. In response Iran bombed American bases in surrounding gulf nations and other targets and closed the narrow Strait of Hormuz between the Persian Gulf and the Gulf of Oman. Some 20% of the world's oil supply runs through that waterway.  The market reaction was immediate with oil prices skyrocketing. Crude oil WTI futures climbed more than 60 percent from $61,89 to $101,38 per barrel over the month, reaching as high as $112,95 per barrel at one point.

Stock indices were very volatile throughout the month on conflicting newslines, on one hand fueling hope on peace negotiations and ceasefire and on the other bashing hope as there's no outlook on when the conflict may end. When a two-week ceasefire was announced, it lasted only a few hours as Israel launched a devastating attack on Beirut. Although Trump has requested NATO allies to assist in reopening the Strait of Hormuz, all have so far refused to participate in the war of Trump's and Israel's own making.

Indices all closed the month in deep red territory. In Europe the DAX, CAC and Eurostoxx indices lost 10,30%, 8,90% and 9,26% respectively. Also Slovenia's SBITOP lost 7,73% and UK's FTSE index lost 6,73%. In the USA the dow Jones, S&P500 and Nasdaq Composite indices lost 5,38%, 5,09% and 4,75% respectively, but the dollar also gained 2,21% to 1,1553$/EUR. In Asia the Nikkei lost a solid 13,32% (after soaring 10,37% in February following election results) and Hong Kong Hang Seng index lost 6,92%. Over the whole month all industry sectors made losses with the exception of the energy sector.

Part of why the dollar gained against the Euro is on inflation fears, a fear that is quite justified. The year had started favourably with the support of solid economic fundamentals. Despite a weakening labour market, inflation was easing and consumer spending steady with expectations that the federal Reserve further cut the interest rate in 2026. However the jump in the oil price will likely make inflation pop up again and delay any further interest rate cuts while having a negative effect on economic growth, creating the possibility of stagflation. Even if the Iran war would end tomorrow, the damage to refinaries and other infrastructure in the Gulf reduced the output and should take months or longer to return to its previous capacity, so we expect the oil price to remain elevated for the foreseeable future and hope the conflict doesn't escalate further than it already has.

The inflationary threat posed by higher oil prices also clouded the picture for eurozone interest rates. In February, European Central Bank (ECB) President Christine Lagarde said inflation was »in a good place«. Interest rates were then kept on hold at the March meeting, but Lagarde said the ECB could raise rates »at any meeting« if higher energy prices risked causing a surge in inflation. Annual inflation in the euro area was 2,5% in March, up from 1,9% in February.

In March, the Bank of Japan left interest rates unchanged at 0,75%, as expected, but warned that higher energy prices risk stoking underlying inflation. Japanese equities experienced a pullback in March. This was largely due to the Middle East conflict, higher energy prices, and energy supply concerns.

Also precious metals made a sharp pullback from their records with gold losing 10,85% to $4678 per ounce and silver retreating 19,69%.

Rudy Marchant
Fund manager Primorski skladi

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