Fed – not the Middle East – still the bigger worry for markets

Financial markets have, so far, taken the latest escalation in the Middle East over the weekend largely in stride. Our sense remains that, absent an even larger conflagration that disrupts energy supply chains, market participants will continue to focus on the usual suspects – growth, inflation, and the outlook for Fed policy. On that front, the headwind from the ongoing surge in long-term government bond yields on account of continued robust US data looks like the bigger concern for “risky assets”, at least in the near term.