Middle East ceasefire, what happens next?

7 days ago
6 min read

We know many of you have been concerned about the conflict in the Middle East and the impact it has had on daily life and financial markets. The recent announcement of a ceasefire is a welcome and positive development, particularly given the significant human cost of the conflict. While tensions in the region have not disappeared entirely, the ceasefire has helped ease some of the immediate uncertainty that markets and households have been grappling with.

Over recent months, the conflict has had real-world consequences, from higher fuel prices at the pump to increased costs flowing through supply chains. Energy prices, particularly oil, influence many aspects of everyday living. Financial markets also responded to this uncertainty, with share markets experiencing volatility and bond yields rising as investors reassessed risk.

It is worth remembering that markets often react quickly to headlines and sentiment in the short term. In the longer term, however, they tend to be driven by fundamentals such as corporate earnings, balance sheet strength, and economic growth. Individual companies may go through periods of volatility, but well-run businesses typically remain resilient over time, continue to generate profits, and, ultimately, see their share prices reflect that underlying value.

These periods of heightened volatility can feel unsettling, much like being caught in a storm. Yet once the storm passes, conditions usually settle and clarity returns. This pattern is common in financial markets, and it is something we plan for rather than react to.

We closely monitor market volatility using indicators such as the VIX (CBOE Volatility Index), often referred to as the fear gauge for equity markets, as well as the MOVE (Merrill Lynch Option Volatility Estimate), which tracks volatility in bond markets.

VIX Index over the past 3 months

MOVE Index over the past 3 months

Equity and bond market volatility moved in tandem: the VIX hovered around 19 ahead of 28 February, spiked to around 30 before easing following the ceasefire announcement, with a similar surge and subsequent pullback evident in the MOVE index.

These measures help us understand investor sentiment and guide portfolio positioning. During times of uncertainty, the most effective course of action is to remain diversified and focused on your long-term objectives rather than short-term market moves.

At Trilogy Financial Solutions, we focus on managing risk through a combination of complementary investment strategies rather than relying on a single approach. This includes goals-based investing; dollar-cost averaging (DCA); active management via active funds and model portfolios; and diversification across asset classes, sectors, and geographies. This multi-strategy approach is designed to help reduce volatility and deliver more consistent outcomes across different market conditions. Your investments are also managed by high-quality fund managers that we have selected for their experience, discipline and long-term track records. We continue to follow a structured and consistent investment approach, focused on managing risk while helping you achieve your personal goals.

While the ceasefire has reduced some immediate concerns, it is still difficult to predict how the situation will evolve over time. What is clear is that there is strong global pressure for stability and resolution, particularly given the impact of energy prices on the cost of living. And with important elections approaching in the US, New Zealand and other parts of the world, there is further incentive for leaders to avoid prolonged disruption and economic strain.

We are working with the most current information available, and we recognise that conditions can change quickly. We will continue to monitor developments closely and keep you informed. As always, our focus remains on guiding you through changing market conditions with a steady, disciplined approach, keeping your investments aligned with your long-term plans and goals.

If you have any queries or concerns about how your investments are faring in the current markets or your financial, investment, lending, or retirement planning matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

Sincerely,

The Team at Trilogy Financial Solutions

OCR remains at 2.25%

At its latest meeting this April, the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) unchanged at 2.25%. This outcome was widely expected by markets and reflects the central bank’s current balancing act. On one hand, inflation has been pushed higher by energy and fuel costs linked to global events. On the other, the domestic economy is still showing signs of softness, and the Reserve Bank is mindful of not adding unnecessary pressure by lifting rates too quickly. The decision signals patience rather than complacency, with policymakers choosing to wait for clearer evidence before making their next move.

Importantly, the Reserve Bank indicated that while a rate rise was not close at this meeting, the option of increases later in the year remains firmly on the table if inflation proves more persistent rather than temporary. Much of the current inflation pressure is expected to be transitory, driven largely by fuel prices. If those pressures ease as supply conditions normalise, the Bank may be able to maintain a longer-term view. However, if inflation stays elevated and moves outside the 1–3 per cent target range for longer, further action may be required. Markets are already pricing in the possibility of rate increases before year end, even though the timing and pace remain uncertain.

For investors and households, this environment has a few practical implications. Mortgage rates have already begun to creep higher, even without a change in the OCR, as banks factor in higher funding costs and future expectations. At the same time, returns on cash and term deposits are becoming more attractive.

This makes cash management an increasingly important part of portfolio construction. We are currently favouring shorter-term and laddered term deposits, typically three to six months, which provide flexibility to take advantage of higher rates if they emerge later in the year. As always, our focus is on helping you balance stability, flexibility and long-term growth while positioning your money sensibly as interest rate conditions gradually evolve.

Energy Efficient Loans

Our in-house mortgage specialist, Adrian Dale, shares his views on energy-efficient loans banks are offering at low interest rates.

Market Update

New Zealand

NZ markets are likely taking cues from the lower oil price and improved risk tone after the Iran ceasefire news, which should help inflation expectations and transport costs.
The local backdrop is still shaped by interest-rate debate, with inflation proving sticky enough to keep the Reserve Bank cautious.

U.S.

U.S. equities have firmed as ceasefire hopes reduced immediate Middle East risk and eased some pressure on sentiment.
The strong March payrolls report showed the labour market remains resilient, so the Fed still has little reason to rush rate cuts.

Australia

The ASX has been under pressure from earlier oil spikes, higher inflation fears and weaker risk appetite.
Energy-sensitive sectors remain in focus, with lower oil after the ceasefire likely helping sentiment, even if the inflation backdrop is still uncomfortable.

Asia

Asian markets have been supported by the ceasefire announcement, which eased fears over energy supply through the Strait of Hormuz.
Japan remains sensitive to oil and currency moves, while broader Asia is also watching tech demand and weaker global growth signals.

Europe

European shares have benefited from the softer risk backdrop, with lower energy prices helping offset some geopolitical stress.
The region still has a constructive growth story, supported by improving demand and easier inflation, but markets remain alert to any renewed conflict shocks.

Commodities

Gold and silver are reacting to the ceasefire in opposite ways at times: safe-haven demand has eased, but volatility and geopolitical uncertainty are still keeping prices elevated.
Oil has been the main driver, with prices falling sharply after the ceasefire as traders priced in lower disruption risk to supply routes. However, the Strait of Hormuz remains closed, allowing only a select number of vessels to pass through.

Upcoming important dates

27 May

Next OCR Update

Late May

Tax reports available for wrap clients

May - June

Tax reports available for managed funds clients

20 May - 10 June

TFS Quarter 2 review season

June - August

KiwiSaver member tax statement published

If you would like to discuss your current portfolio, retirement planning needs, goals-based investing approach, or any other financial planning matters please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.

We are always happy to help.