Markets Rally on Ceasefire — But Inflation Risks Haven’t Disappeared

Overnight, reports emerged that the U.S. and Iran agreed to a two-week ceasefire that would reopen the Strait of Hormuz, with negotiations set to begin later this week. At first glance, this is clearly positive for risk assets. However, I think it’s important to look beyond the headline reaction.

Why this may only be a temporary reprieve 
While the ceasefire reduces immediate tension, it raises several unresolved issues: -

• Iran may seek permanent leverage over the Strait of Hormuz, potentially through tolling or other control mechanisms
• Negotiations will likely involve Iran’s nuclear program, which has historically stalled progress
• Tanker operators and producers may be slow to normalize activity, even with a ceasefire. 
• Extensive damage to regional infrastructure may limit supply recovery

In short, the immediate risk premium may fall, but the structural supply uncertainty remains.

Inflation risks still matter
Even if tensions ease, the economic consequences could persist.  The outcome of the past 5 weeks of war has left energy infrastructure damaged which and can keep oil and LNG prices elevated.  These higher energy costs ripple into transportation, fertilizer, and industrial production with markets already re-pricing interest rate expectations higher. All major central banks have commented this week - highlighting upside inflation risks and downside growth risks.

Portfolio implications
Periods like this tend to challenge traditional diversification of traditional balanced funds. When inflation rises, stocks and bonds often move more closely together making real assets such as gold and alternatives a meaningful addition to investment portfolios.  

What we’re watching next
The key factor from here will be duration:

1. How long does the ceasefire hold?
2. Do shipping and production levels normalize?
3. Do Central banks change their policy tone?
4. Does energy inflation feed into broader price pressures?

Markets have welcomed the news — but the underlying macro backdrop remains complex.

Bottom line
The ceasefire is encouraging and helps reduce immediate geopolitical risk. However, uncertainty around energy supply, inflation, and central bank policy remains. Maintaining diversification — including exposure to real assets — continues to be an important part of navigating this environment.
As always, portfolios are positioned with a long-term perspective, balancing growth opportunities with risk management.

Please feel free to reach out if you’d like to discuss how these developments relate to your investments.

Team Changes
Josh Dickson has decided to leave us to pursue an exciting new opportunity in Toronto.  He has been a tremendous support to both our team and our clients, and we are very grateful for his professionalism, responsiveness, and positive attitude.  Please join me in wishing him every success in this next chapter.  In the meantime, I am in the process of hiring a replacement and expect to have someone in place by the end of the month.