In a note to clients, strategist Emmanuel Cau said investor confidence, previously supported by perceived policy flexibility from Donald Trump, is starting to weaken amid growing uncertainty, News.az reports, citing BBC.
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“Constant flip-flopping and headline fatigue is starting to undermine the put efficacy,” he wrote, referring to the belief that policymakers would act to stabilise markets during periods of stress.
Volatility driven by shifting deadlines
Markets have reacted sharply to developments surrounding tensions with Iran, particularly over the reopening of the Strait of Hormuz, a critical route for global oil shipments.
According to Barclays, investor sentiment swung rapidly earlier in the week as deadlines set by the White House were repeatedly extended. Initial panic across oil, bond and equity markets eased after temporary reprieves, but the pattern of shifting timelines has contributed to confusion and reduced confidence.
At the same time, Israel has intensified military operations, while the United States is reported to be increasing troop deployments in the region, adding to geopolitical uncertainty.
Markets remain optimistic despite risks
Despite these developments, equity markets have shown notable resilience. Cau said current price action suggests that investors still expect markets to move higher, supported in part by positioning adjustments from hedge funds and systematic traders.
Long-only investors, in particular, remain relatively optimistic, continuing to view the situation through what analysts describe as a “glass half-full” lens.
However, Barclays cautioned that this optimism may be misplaced, with the risks of a prolonged conflict and sustained energy shock not fully reflected in asset prices.
Stagflation concerns intensify
The bank warned that if tensions persist and oil prices remain elevated, the global economy could face increasing stagflationary pressures, characterised by slower growth alongside rising inflation.
Barclays economists now forecast global growth of 2.9% by the end of 2026, while inflation is expected to rise to 2.7% over the same period.
Advanced economies are projected to see weaker expansion, with growth estimates of 1.7% overall. Within that, the euro area is expected to grow by just 0.7%, the UK by 1.0%, and Japan by 1.4%.
As geopolitical tensions continue to shape market dynamics, analysts say the key question is whether investors are adequately pricing in the risks of escalation — or once again relying on policy signals that may prove less effective over time.
