What to watch in the week ahead

• Investors will continue to weigh signs over whether the US and Iran are getting closer to a diplomatic solution or whether hostilities will escalate further. This will likely remain the main determinant of market movements this week.
• Economic data for March should start to provide early guidance on how the Middle Eastern conflict is impacting businesses, consumer confidence, and inflation. A range of Fed speakers will also provide further guidance on how the conflict could shape monetary policy.
• Gold has given up almost all of its gains for 2026, having at one stage in January been as much as 25% higher. Can the metal regain its poise and resume its rally?

What comes next for the US-Iran conflict?

Investors remain poised between hopes of a diplomatic solution and concerns of an escalation. On the one hand, President Trump has said he is interested in “winding down” the war and the US has sent a 15-point peace plan to Iran. Trump also extended his deadline for Iran to open the Strait of Hormuz until 6 April. On the other hand, reports that the US has been dispatching thousands more troops to the region have intensified talk about the potential for ground operations—which would represent a further escalation. Added to this, the negotiating positions of the two sides still seem far apart, with Iran denying that direct talks are even taking place. Tehran’s conditions for a cessation of hostilities—including safeguards against future attacks, the payment of reparations for damage caused by the bombings, and recognition of its sovereignty over the Strait of Hormuz—are unlikely to be acceptable to the US. In addition, the increased involvement by Iran-backed Houthis in Yemen also has the potential to widen or prolong disruption.

This week investors will remain focused on whether diplomacy can make progress or whether an escalation—or broadening—of the conflict will presage a more sustained period of high energy prices.

Our recommendation for well-diversified investors remains to stay in the market, and we continue to view equities as Attractive. However, with energy prices likely to stay higher for longer, we have become more cautious on equity markets that are cyclical and most reliant on imported fuel. These include the European, Eurozone, and Indian equity markets, which we have downgraded to Neutral. Against this backdrop, we see greater appeal in defensive markets with secular growth potential and limited exposure to energy disruptions. That would include the Swiss equity market and the European health care sector. Finally, the prospect of a longer-lasting conflict is heightening the vulnerability of equity and bond portfolios, with elevated correlations eroding traditional diversification benefits. This underscores the importance of diversifying beyond traditional asset classes, hedging, and progressive de-risking.

Is the Middle East conflict taking an economic toll?

A key question for investors is how events in the Middle East, and the resulting rise in energy prices, affect the overall economy, with a focus on inflation and growth. This week investors will be scrutinizing a range of economic indicators for early signs of how major economies are holding up since the start of airstrikes on 28 February.

On the issue of prices, we get the flash estimate of Eurozone consumer price inflation for March. The US ISM services sector survey for March could also capture any initial impact on business sentiment. Notably, economists will be looking for any signs of distress in the travel and transport industries. On the consumer side, the Conference Board survey could provide preliminary guidance on whether the mood is deteriorating. Of particular interest will be how consumers view the labor market— whether jobs are plentiful or hard to get—since this has been correlated to the unemployment rate.

The US jobs report for March is released later this week. This only covers the week ending 14 March, so any guidance on the impact of the Middle East conflict will be tentative. Again, however, there could be headwinds in parts of the economy that are sensitive to energy prices—including leisure and travel. Various Fed officials are also talking, and investors will be looking for their latest views on the economic impact of the conflict and its potential to shape monetary policy.

But our base case remains that the US labor market remains relatively healthy, and we don’t expect central banks to overreact to a temporary rise in headline inflation. Our base case is still for the Fed to cut twice in 2026, with the ECB staying on hold. With rates low in much of the world and likely to decline further in the US and UK, we recommend investors seek diversified income through quality bonds, supplemented with selective exposure to riskier credit. The recent rise in quality government bond yields has created an opportunity to lock in yields up to the 10-year point, with elevated short-term interest rate expectations especially relevant for shortduration quality bonds.

Can gold regain its lost momentum?

Gold, which had been up as much as 25% in January, has—at the time of writing—erased virtually all of its 2026 gains. As of the end of trading on Friday, gold is now up just over 4% so far this year. A recent decline of nearly 12% in just five trading days was one of the steepest drops over such a short interval in over four decades. This seems counterintuitive to many investors, since gold is expected to benefit from a flight to safety in periods of elevated geopolitical uncertainty.

Investors will be looking to see if gold can recover its poise or even resume its rally. Gold’s recent weakness is not as mysterious as it initially appears, in our view. History shows that gold does not always rally during periods of conflict, particularly in the early stages. The economic context is crucial. In the recent episode, gold has faced several key headwinds. The move higher in energy prices has led markets to price tighter monetary policy on the assumption that central banks will either hike or delay cuts to counter rising headline inflation. That raises the opportunity costs of holding non-yielding assets, such as gold.

Markets have shifted from implying two and a half Fed rate cuts in 2026, to no further easing this year, and even a small probability of a hike. Bond markets are now pricing three interest rate hikes by the European Central Bank and the Bank of England this year, and no cuts by the US Federal Reserve. We believe this is excessive, especially given the potential drag on growth from prolonged, higher energy prices. We still expect easing from the Fed this year. We also expect a renewal of demand for gold from investors and central banks, as the preference for liquidity stemming from the Middle East crisis abates.

So, our view is that the decline in gold is likely to be relatively short-lived. While the timing is hard to pinpoint, we do expect gold to rebound and forecast the precious metal to climb to USD 6,200 an ounce by the end of June, scaling back to USD 5,900/oz in early 2027, from around USD 4,500/ oz at present.