Day five of the US–Israel conflict with Iran continues to unfold. Reports suggest that financial markets have reacted largely in line with expectations. Although markets initially reacted calmly on Monday, sentiment weakened considerably yesterday.

The geopolitical landscape shifted over the weekend following coordinated U.S. and Israeli strikes resulting in the death of Iran’s Supreme Leader. While military action of this magnitude naturally dominates headlines, tensions in the region have been building for several months.

Markets rallied last week off the back of the recent Supreme Court ruling that declared many of the Trump administration tariffs unlawful. However, the White House has maintained that it will proceed with a new global tariff regime.

This week, trading volumes were lower, partly because U.S. markets were closed on Monday and both Mainland China and Hong Kong were also shut.

In Japan, Prime Minister Takaichi secured a decisive victory over the weekend, as her recently called election delivered a landslide majority for the Liberal Democratic Party – a feat that has eluded many leaders in recent years.

After months of negotiations that ultimately toppled two prime ministers, France has finally secured parliamentary approval for a national budget. The breakthrough was made possible when the Socialist Party signalled it would stand aside, provided certain concessions were made.

This week, investors are focused on the Federal Reserve’s policy meeting, which began on Tuesday and concludes this evening UK time with an interest-rate decision. Rates currently sit within the range of 3.5-3.75%.

For the first time since September, UK inflation has risen. Headline CPI came in for the month of December at 3.4%, with an increase in tobacco prices accounting for a large portion of the latest rise, alongside rising food costs.

Over in Iran, what started as anger over the sharp collapse of the Iranian rial has broadened into a wave of dissatisfaction with the country’s leadership more generally, with protests and fatalities characterising the past few weeks.

With scant economic data for investors to pour over as the new year gets started, all eyes have turned to the recent U.S.-Venezuela upheaval. On Saturday, the world woke to news that President Donald Trump had authorised a raid of Venezuela overnight, capturing the current President Maduro and his wife on alleged narco-terrorism charges.