The ceasefire in Iran reassures more about growth than about inflation - 13 April 2026

A ceasefire in Iran paves the way for de‑escalation and strengthens the scenario of resilient global growth. Nevertheless, interest rate prospects remain uncertain, as the reversibility of the inflation shock is not yet clearly established.

The chaotic start to a phase of negotiations between Washington and Tehran has allowed equity markets to rebound strongly since their 20 March low. In the bond market, however, volatility rather than relief has predominated. In Europe, as of 10 April, the Stoxx 600 index had erased three‑quarters of its March decline, but 10‑year German yields had barely eased (Chart 1). How can this divergence between the two markets be explained?

The rebound in equities clearly reflects the idea that global growth will remain resilient, and investors’ confidence in listed companies’ ability to benefit from it. However, the impact on long term interest rates is more ambiguous. De escalation certainly reduces inflation risk, but by shoring up confidence in growth it pushes real yields higher. In addition, no one knows how quickly the supply of energy and fertilisers will be able to normalise. If this process proves too slow, supply chain pressures could remain elevated, with the risk of spillovers to other prices, such as agricultural prices. In such a scenario, central banks would remain very cautious.

The US case is instructive in this respect. The sharp increase in tariffs in 2025 drove inflation in the goods sector higher in a gradual but stubborn way. The effect took many months to feed through, and goods inflation (excluding energy and food) was still accelerating in March 2026 (Chart 2), even though tariffs have been cut again since November 2025. A very recent Federal Reserve study [1] suggests that this effect has probably peaked at the start of this spring, which appears reassuring. But the new price shock linked to the war in Iran will force the Fed to remain vigilant.

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[1] “Detecting Tariff Effects on Consumer Prices in Real Time”, Federal reserve (8 avril 2026)

As Frank Elderson, a member of the ECB, summed it up in a note dated 7 April, it is the succession of price shocks since Covid that is making central banks uneasy. Short‑lived energy crises usually have little lasting impact on inflation in the absence of wage indexation. But repeated supply shocks could shift economic agents’ behaviour in a more inflationary direction. In the face of these uncertainties, markets are still pricing out any Fed rate cuts before the autumn and are expecting at least two rate hikes from the ECB.

In this context, two broad categories of scenario appear to be on the table. In the central scenario, resilient growth is accompanied by an inflation spike that is limited in both duration and intensity, which will ultimately reassure central banks and bond markets. In an alternative scenario, inflation becomes entrenched and rising interest rates end up breaking growth. The probabilities of these two scenarios continue to depend on how quickly the Strait of Hormuz is reopened, but also on how economic agents adapt to the new environment.

In our Global Macro funds, our strategies have been based on the first scenario since the end of March. In recent days we have continued to increase our equity exposure by reducing our hedges and investing in the US market and in European banks, which benefit from somewhat higher long‑term rates. While awaiting further diplomatic developments, we are nevertheless maintaining positions that can be hedged or unwound quickly in the event of an adverse scenario.