Investors continue to monitor the impact of Middle East tensions on global markets, with no positive developments emerging.
On March 23, European stock markets saw their losses widen, with declines generally around 2 percent.
Simultaneously, market expectations have shifted toward interest rate hikes. Traders are now pricing in Federal Reserve rate increases, factoring in approximately 20 basis points of tightening over the full year of 2026.
According to the CME FedWatch Tool, expectations for Fed rate hikes this year have surged sharply. Interest rate futures indicate that by the end of 2026, the Fed is more likely to raise rates than cut them.
Additionally, as the Iran conflict continues to fuel inflationary pressures, traders have for the first time fully priced in a full percentage point (100 basis points) of monetary tightening by the Bank of England by 2026.
Pricing in the interest rate swap market reflects expectations for four separate 25-basis-point hikes—a complete reversal from the two rate cuts anticipated before the conflict. UK government bonds opened lower, led by short-dated maturities, with the two-year yield rising 9 basis points to 4.66 percent, its highest level since 2024.
In the Middle East, Iran has threatened to mine the entire Persian Gulf if its coastline or islands come under attack.
On Monday, Iran's Defense Committee stated that if Iranian shores or islands are attacked, it will deploy naval mines to blockade the entire Persian Gulf.
A statement from the high-level security body, cited by the semi-official Fars News Agency, said: "The only way for non-belligerent nations to pass through the Strait of Hormuz is through coordination with Iran."
The Defense Committee further warned that "any enemy attempt to attack Iranian coasts or islands" would result in "all passages and communication lines across the Persian Gulf and its coasts being filled with various types of naval mines."
The statement added: "The entire Persian Gulf will effectively be blockaded, and responsibility will lie with the party issuing the threat."
This warning comes after Iran's military previously indicated it would close the Strait of Hormuz and strike regional infrastructure if former President Trump carried out his threat to bomb Iranian power facilities should the key waterway not reopen by Monday night.
