The war on Iran has entered its fifth week. While officials from the US recently claimed it won’t be a prolonged conflict, markets are having difficulty seeing an end to the war, with both sides appearing to talk but not seeing much progress as military strikes continue. US President Donald Trump said he would soon raise attacks on Iranian energy hubs if the Strait of Hormuz is not reopened. The closure of this critical waterway has pushed oil prices sharply higher, stoking inflationary concerns. Now, there is growing concern that the conflict could have a meaningful impact on global economic activity.

• Global government bond yields moved lower yesterday after rising significantly over the past month. Investors piled money into the relative safety of government bonds over concerns the conflict in the Middle East will slow global economic activity.
• Since the beginning of the conflict, which has pushed energy prices much higher, markets have grown worrisome about rising inflationary pressures. In turn, there was fear that major central banks may have to raise interest rates to keep a lid on inflation. This pushed bond yields higher.
• Trump said the US and Iran are in discussions to end the conflict, but he cautioned that the US would increase its military presence if a deal is not reached.
• The uncertainty is gripping households and businesses around the world. In Canada, the Bloomberg Nanos Canadian Confidence Index fell below 50 for the first time since December 2025.

Yesterday, markets placed their attention on how this conflict will impact the global economy. The International Energy Agency recently cautioned that the conflict could have an impact on global economic activity even after it concludes. Higher prices and lower confidence levels could hinder spending and investment decisions, which could weigh on economic activity. Canada’s economy may not be immune from the impact, but history has shown that Canada’s economy has overcome times of struggle to grow over the long term.

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