The Middle East conflict remains the dominant headline and driver of financial market movements and economic uncertainty, with rapid developments continuing to evolve the situation daily.  While the ceasefire from last week was encouraging, the prudent interpretation is that this represents a "less bad" scenario rather than "problem resolved”.  

In this economic update, we explore the recent developments stemming from the U.S.-Iran negotiations, their cascading effects on inflation, growth, and corporate earnings, and what investors will be monitoring in the weeks ahead.

We are also proud to highlight the fundraising success of this year’s Black Tie Bingo in support of the Foundation of Guelph General Hospital, hosted on March 28th.

Economic Update

Geopolitical tensions continue to be the primary driver of financial market movements and economic uncertainty across major regions.  In this week’s economic update, we examine the recent developments stemming from U.S.-Iran negotiations, their cascading effects on inflation, growth, and corporate earnings, and what investors should monitor in the weeks ahead.

Geopolitical headlines remain fluid

After weeks of trading deadlines and escalating rhetoric, the U.S. and Iran reached a temporary ceasefire contingent on Tehran reopening the Strait of Hormuz (SoH) to commercial shipping. The agreement was seen to reduce the likelihood of worst-case economic outcomes stemming from a severe disruption to energy markets. Markets responded constructively: equities recovered a portion of recent losses, oil prices pulled back, and bond yields declined. Lower energy costs, if sustained, should ease pressure on consumers and businesses, moderating concerns around the inflation backdrop and earnings outlook. Over the weekend, the legitimacy of this ceasefire and the subsequent announcement from the U.S. administration about an American blockade of the strait has added further skepticism and doubt over where the conflict will go from here.

Despite the collective sigh of relief from the ceasefire announcement, the prudent interpretation is likely “less bad” rather than “problem resolved.” The ceasefire provides time for both sides to find common ground and, ideally, a framework that lets each claim some version of a win. For many economies and businesses, a challenging second quarter may be largely unavoidable. What remains to be determined is whether that headwind gives way to a gradual normalization or renewed disruptions. Should the ceasefire hold (and without clear understanding of the new developments around the U.S. blockade), we believe the most likely outcome remains a period of slower growth and somewhat elevated inflation before conditions improve later in the year.

Global Economic Resilience Tested

The softening we observed a few weeks ago has become more broadly visible. The latest business surveys suggest growth moderated across major economies, with the pressure most evident in consumer-facing areas. Globally, hiring trends have cooled and cost pressures have risen, reflecting the effects of higher energy prices. 

In Canada, conditions are mixed. The manufacturing sector stalled, and services activity contracted for a fifth consecutive month as consumers delayed spending decisions - but business confidence reached a six-month high on optimism around trade prospects and a potential resolution in the Iran conflict. Overall activity levels remain consistent with continued expansion, albeit at a slower pace than before the war. 

In estimates published before the ceasefire, RBC Global Asset Management’s forecasts aligned with the direction now visible in the data. They estimated that a sustained energy price shock could lift inflation by roughly one percentage point in North America, and by more in Europe and Japan. Growth impacts vary by region, with Europe and Japan again bearing the brunt of a slowdown, while Canada’s position as a net energy exporter could translate into a modest boost to growth. 

Eyes On Corporate Guidance

Despite heightened uncertainty, corporate profit estimates in Canada and the U.S. have continued to move higher. However, upward revisions have been concentrated in the energy and technology sectors. Outside of these companies, revisions have been limited, suggesting analysts have yet to fully incorporate the softer economic backdrop.

Earnings forecasts can lag economic developments, which is why the upcoming corporate reporting season will likely carry more weight than usual. Management guidance on business conditions and consumer demand will provide valuable signals on whether the current trajectory in earnings is sustainable and whether it can provide fundamental support for equity markets.

Summary

The economy and markets remain in a “stress testing” phase, but the ceasefire represented an encouraging step toward stability. A key indicator we are monitoring is the normalization of shipping activity through the Strait of Hormuz, which would signal improving commodity supply constraints. The full implementation and impact of the U.S. blockade remain to be seen – we will continue to monitor this situation.

While periods of rapid news cycles and sharp price swings in both directions can challenge investor confidence, these moments underscore the importance of maintaining a balanced perspective. We believe portfolio allocations should be closely aligned to long-term target weights, while acknowledging that markets may experience renewed bouts of volatility as U.S.-Iran negotiations unfold.

Black Tie Bingo – over $450,000 raised for essential medical equipment

On Saturday March 28th, we were proud to be major sponsors for Black Tie Bingo, in support of the Foundation of Guelph General Hospital.

We are excited to share the success of the event – through the generosity of donors, patrons, and sponsors, the Foundation has announced that the evening raised over $450,000.  These funds will have a direct impact on Phase 2 of Guelph General Hospital’s Speedvale Campus. This will help to bring expanded access to ambulatory care services, most notably including six fracture exam rooms and new endoscopy suites.

We are proud to be long-time sponsors of this incredible event, which will be fundraising to support the essential patient care tools that nurses rely on every day to provide high quality, safe and compassionate care.  

Congratulations to everyone at the Foundation and those who made the night such a fun and successful event. We’d also like to thank all of the generous donors and sponsors who helped support these fundraising efforts.