- Markets have celebrated the end of the Strait of Hormuz conflict. The economy has not yet earned that relief — and for most households, corporates, and governments, things may get worse before they get better. The physical reopening is a multi-month process, not a switch. The US-Iran MoU and 60-day ceasefire mark a meaningful turning point, but they are a de-escalation framework, not a final settlement. Normalization will be slow, frictional, and reversible, and markets have frontloaded the good news before the transmission lags have even peaked. Mine-clearing alone takes 30 to 50 days. After that, commercial traffic returns only as fast as shipowner confidence allows — the 1988 Iran-Iraq precedent shows normal conditions took more than three months to restore even with US naval escorts. Our base case restores 65% of the disrupted 4-5 mb/d within three months and 80% within four, with full normalization by year-end. The corridor reopens under managed, not free, navigation. Any stumble in nuclear negotiations or ceasefire adherence on Lebanon restarts the clock.
- Energy prices ease, but inflation peaks later than markets think. Brent stabilizes around USD 80/bbl in Q3 before easing to USD 75/bbl in Q4 and USD 67/bbl by end-2027. Past energy increases are still passing through supply chains, utility bills, and rents. US headline CPI averages 3.3% in 2026 and core CPI peaks at 3.1% in Q4; Eurozone inflation peaks around 3.4% in Q4 before averaging 3.1% in 2026. Real wages turn positive only in Q1 2027. Markets pricing disinflation from today are running at least two quarters ahead of the data.
- The shock hits every balance sheet - but Europe bears the deepest scar. The US absorbs the blow with structural advantages: a net energy exporter, it captures a terms-of-trade windfall through higher mining revenues and fiscal receipts, while tax rebates cushion households and AI-driven investment sustains corporate capex. Europe has no such offset. Governments across the Eurozone have deployed just EUR 12bn YTD - 0.1% of GDP - with Germany's defense and infrastructure stimulus the sole demand anchor. Households face a sharper and more persistent squeeze: energy bills represent a larger share of disposable income than in the US, floating-rate mortgage exposure is higher across the UK and Netherlands, consumer confidence has not recovered to pre-war levels, and real purchasing power will remain compressed through most of 2026. For corporates, the energy cost relief, most visible in transport and petrochemicals where fuel runs 25-40% of operating costs, runs directly into this demand void. Pricing power is the dividing line: airlines and branded pharma can defend margins through surcharges; automotive OEMs and generic drugmakers cannot. Input costs are easing but wage bills remain elevated into 2027, and listed-company cash has already fallen 3% to EUR 36.7trn. Any ceasefire relapse would recouple all three pressures simultaneously - reigniting input costs while households are still digesting the first wave and fiscal space is exhausted - with Europe more exposed throughout given higher energy intensity, greater trade openness, and no room left for transfers.
- For central banks, the risk of a policy mistake is the highest since 2022. Both the Fed and ECB are expected to deliver one further hike in H2 - the Fed likely in September as core CPI ticks above 3%, the ECB before year-end - before disinflation opens the door to cuts in H2 2027. Both face a time consistency problem as inflation pressure will fade quickly while their data-dependency on backward-looking measures continues to justify tightening well into Q4. Overtightening into an already-fragile household and corporate backdrop remains a plausible — and underpriced — scenario for both banks. But the US retains more growth momentum to digest further tightening, while the Eurozone's growth is already fragile.
- For capital markets, the signal is rotation and carry, not re-rating. Equities never priced the conflict as a systemic shock - MSCI US up ~8%, MSCI Europe +5% YTD - so there is little upside to unlock on good news but significant room to gap lower on bad. Valuations sit in the 85th percentile with earnings in the 92nd percentile (MSCI World, 20-year history); a 5-10% pullback through summer is plausible. A tilt toward Europe, cyclicals, and energy-sensitive sectors is warranted over a broad melt-up. On credit, EUR IG at ~77bps and US IG at ~72bps are near all-time tights; the deal protects the carry trade rather than opening new compression. In rates, the short end and belly of European curves offer the most compelling outperformance (~35bps front, ~20bps belly), while long ends remain vulnerable to fiscal supply - bull steepening, not a parallel rally. In private markets, gains show up in activity - firmer exits, smoother refinancings - not in marks.
- Relief is the call. It is not the all-clear. Markets have frontloaded the peace dividend; the economic data has not confirmed it. Inflation will get worse before it gets better. Household and fiscal stress will persist well into 2026. And the deal remains conditional on nuclear negotiations and a multi-front ceasefire with a poor track record. The asymmetry is uncomfortable: upside on good news is modest; downside on bad is fast, disorderly, and correlated. The cost of being slow to react would far exceed the cost of staying cautious.