The markets are on a tear convinced normalisation is around the next corner. Yet they ignore the reality the Iran war has done significant damage to the global outlook – even if Tehran and Washington kiss and make up tomorrow. I don’t claim to understand the madness of markets and their ability to keep fooling themselves, but I do follow economic history and how events change outcomes.

Damn the torpedoes! Full steam ahead. The recent 10-year Gilt auction was a screaming success. There is plenty of demand at the right yield – 5% for 10 years! The cost of servicing debt is high, but to create growth the government needs to fix the economy by borrowing more. Global investors know that when assessing the UK’s yield premium. The UK would do better to borrow more rather than less!

We think we know the patterns – how markets resonate and repeat. But…. Do we? Every so often the Earth’s polarity shifts – but its never happened in recorded history so we don’t really know. Every so often the World’s basis changes. Make merry while we can. Enjoy what is real. The rest is just numbers. You are measured not by the digits on your bank balance, but by the numbers of your friends.

Oh dear. Last night’s explanation of the War did not go well. What changed except a more unstable and fractured global economy and rising trade, supply chain and conflict risks? When markets are priced for perfection – what happens when reality intrudes. I see bad things arising.

The global economy is inevitably slowing from the deepening Hormuz oil shock. The Americans intend to press on despite the rising costs. While the global economy burns, President Trump is mulling multiple plans to achieve his version of victory. The rest of the World is waking to the reality this war is damaging their economic interests, and wondering how to mitigate the effects.

The cost of Trump’s War on Iran is extraordinary - $1 bln a day plus. War Stocks are being consumed at incredible speed. A request for an additional $200 bln of funding is in the works. The nature of war has changed – it could prove phenomenally destructive, expensive and ruinous to winners and losers alike. Meanwhile the economic outcomes of the war remain in the balance.

Suddenly global markets are reeling – waking up to the reality of the unwinnable Iran War. What will a dramatic shift in sentiment mean for stocks, bonds and commodities as stagflation beckons, and Trump finds himself isolated? There is a growing risk of a liquidity shock to global markets.

Global disruption – how likely is it to end quickly? Trump’s objective was to install a regime that will do his bidding in Iran. The appointment of Khamenei v2.0, the lack of a clear opposition, or defectors, makes a swift closure increasingly less likely. Global markets are pricing for a long, destabilising war with rising inflationary and geopolitical volatility.

As the US and Israel attack Iran, confirming the Fire Horse threat of escalating conflict risks, do we also face a second social threat from AI triggering widespread social and wealth-inequality protests? Does 2026 risk becoming a double whammy hit on market sentiment and confidence?

Does the steepness of the US yield curve tell us the US Economy is about to boom, or inflation is about to sink the Treasury markets? To figure out which, you need to interrogate the witnesses and look at what the evidence is telling us.