The markets woke to distant thunder this morning, but it was not from a storm in the Pacific. Israel launched airstrikes into southern Lebanon after Hezbollah rejected the latest diplomatic framework. For those of us who track risk premiums, this is a sharp reminder that geopolitical uncertainty does not respect fiscal calendars.
The Israeli shekel wobbled, Brent crude briefly spiked, and London’s gilt-edged calm was ruffled by the whiff of a wider conflagration. The Foreign Office’s call for restraint is the usual boilerplate, but the bottom line is that when deterrence fails, volatility becomes the new normal. Hezbollah’s rejection suggests either the deal was too thin or the appetite for conflict too thick.
Either way, the cost of capital in the region just rose. Investors should brace for more turbulence. The only certainty is that war is a poor hedge against inflation.
