Overview
The March 2026 market update is dominated by escalating geopolitical tensions in the Middle East, with global markets highly sensitive to whether the Strait of Hormuz reopens. The breakdown of peace talks between the US and Iran drove sharp volatility across asset classes, pushing markets lower and lifting inflation risks worldwide.
Market Performance
Most major asset classes fell during March. Australian shares declined sharply, international and emerging market shares also recorded losses, and listed property suffered significant falls. Bonds failed to provide their usual defensive support, as higher inflation expectations and concerns about the cost of military conflict led to rising yields and negative returns.
Inflation and Economic Conditions in the United States
US inflation accelerated during the month, driven primarily by energy prices. Headline inflation rose materially while core inflation has so far remained contained, though upward pressure is expected in coming months. Consumer sentiment deteriorated significantly, inflation expectations rose, and real household disposable income showed signs of flattening even before the conflict intensified. While the labour market remains resilient, the risk of weaker discretionary spending and higher household savings could weigh on growth, increasing recession risks if conditions worsen.
Global Inflation Trends
Inflationary pressure is evident across major economies. In Europe, fuel price increases pushed headline inflation higher, although food and core inflation remain relatively stable for now. Supply chain disruptions and fertiliser shortages pose upside risks. In China, producer prices turned positive for the first time in several years, with energy costs starting to feed into the broader economy. Authorities are expected to increase stimulus later in 2026 as growth momentum cools.
Australian Economic Outlook
Australia faces similar challenges, with energy price shocks flowing through to a wide range of goods and services. Price increases appear more entrenched in areas such as building materials, raising concerns that inflation will remain elevated even if fuel costs ease. Bond yields remain high, unemployment has edged up slightly, and the Reserve Bank of Australia is still expected to tighten policy further given the inflation outlook. Sector and Equity Market Themes Equity market performance was highly divergent. Energy stocks were the standout performers as oil prices surged, while rate-sensitive sectors such as real estate, utilities and healthcare were sold heavily. Technology stocks underperformed significantly. Similar patterns were observed in the US market, with energy companies outperforming and industrial names lagging.
Key Risks and Outlook
The outlook hinges critically on developments in the Middle East. A prolonged closure of the Strait of Hormuz would likely trigger a global recession alongside surging inflation, echoing 1970s-style stagflation. Even partial disruption would cause significant economic damage. While a swift resolution could ease growth risks, inflation pressures from disrupted supply chains are likely to persist, keeping central banks cautious in the near term
