Futures, Gold Jump As Yields Fall Despite Surging Oil As Recession Fears Surpass Inflation Concerns

Futures are higher despite continued Iran war escalation which pushed Brent higher by around 2% after Iran-backed Houthi militants in Yemen joining the war on Iran’s said, bouncing from overnight lows which may be driven by positioning, but also by a major shift in the regime with oil now rising instead of falling on higher oil prices as the market pivots to price in not inflation but recession (and look at the spike in gold/bitcoin this morning as the next stimmy starts getting priced in). As of 8:00am ET, S&P futures are at session highs, rising 0.6% after the benchmark slumped to an August low at the end of last week, and reversing an early overnight loss; Nasdaq futures rise 0.7% with all Mag7 names higher premarket, boosting Semis, as Cyclicals (incl Energy) are leading Defensives ex-healthcare. The moves in Energy and healthcare are also breaking recent trends suggesting investors may be shifting portfolios to cash flow heavy names as they consider oil prices remaining elevated for longer. The most notable move overnight is that after weeks of rising, US yields fell across the curve after money markets cut the odds of a Federal Reserve rate hike in 2026 to about 20%, from around 35% on Friday. The rate on two-year Treasuries dropped five basis points to 3.87% while 10Y yields are down 7bps to 4.36% The dollar was little changed. Commodities are stronger as WTI moves above $100/bbl. Gold/precious and bitcoin are all higher despite USD strength, breaking the recent trend, as they start pricing in the looming stimulus to offset the next recession. Today's US economic data calendar includes the March Dallas Fed manufacturing activity at 10:30am. Ahead this week are consumer confidence, JOLTS job openings, retail sales, ISM manufacturing and - in an abbreviated session on Friday - March jobs report

In premarket trading, Mag 7 stocks are all higher: Meta +1%, Nvidia +0.6%, Microsoft +0.9%, Amazon +0.6%, Tesla +0.8%, Alphabet +0.4%, Apple +0.2%

Aluminum stocks, including Alcoa (AA), rise after a rally in the metal price following Iran’s attacks on Middle Eastern aluminum facilities. Alcoa (AA) gains 9%.
Expedia (EXPE) gains 2% and Instacart (CART) rises 1% after Jefferies upgraded both to buy, saying a pullback in internet stocks on concerns about artificial intelligence disruptions has created buying opportunities.
IQiyi ADRs (IQ) gain 12% after the Chinese streaming platform said it’s planning a listing in Hong Kong and announced a $100 million buyback program.
Spire Inc. (SR) gains 4% after agreeing to sell its gas marketing business to Boardwalk Pipelines for $215 million in cash.
Sysco (SYY) falls 4% after the US food distributor agreed to buy privately held Jetro Restaurant Depot LLC for $29.1 billion including debt.
Viridian Therapeutics (VRDN) tumbles 40% after announcing topline results from a clinical trial in active thyroid eye disease.

WTI crude surged above $100 after the arrival of a US amphibious assault group and the entry of Iran-backed Houthi forces into the conflict heightened fears of escalation as the war entered its second month. Trump told the Financial Times that he wants to “take the oil in Iran” and could seize the export hub of Kharg Island, a move that could trigger significant retaliation from Tehran.

While traders have so far largely focused on the inflationary shock from rising oil prices, sending the Treasury market toward its deepest monthly loss since October 2024, some of Wall Street’s biggest bond-fund managers said yields will slide as the war’s impact on growth becomes more apparent.

"The slight recovery in the bond markets is only temporary,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM. “The impact on inflation is not yet fully priced in, and potential interest rate hikes would negatively affect the already gloomy economic outlook."

“While inflation remains a concern, the potential drag on growth and confidence should start to act as an offset, limiting further upside in yields,” said Francisco Simón, European head of strategy at Santander Asset Management. “Together with oil, we think the bond market is currently one of the clearest expressions of how markets are pricing the impact of the conflict on the macro outlook.”

Over the weekend, the Houthis entered the conflict putting additional pressure on supply via a chokepoint in the Red Sea (although they have not yet indicated they will halt the key chokepoint). JPM estimates the impact is ~5mm bpd which could add another $20/bbl to oil prices. Trump states that Iran has agreed to most of the 15-point plan while Iran’s Foreign Minister says that there have been no direction talks, called US demands excessive / illogical, and that Iran did not participate in diplomatic meetings in Pakistan over the weekend. This morning Trump said on TS that there had been "great progress" in talks with Iran, and warned that if a deal with Iran is not “shortly reached,” and the Hormuz Strait is not immediately open, “we will conclude our lovely ‘stay’ in Iran by blowing up and completely obliterating all of their Electric Generating Plants, Oil Wells and Kharg Island."

With two sessions left, the S&P 500 has tumbled 7.0% this quarter - its worst performance since the rate-hike selloff four years ago. Still, that 2Q 2022 slump was more than twice as severe.

“Some signs of capitulation are starting to emerge,” Goldman Sachs’ Prime Trading desk said in a note on hedge funds’ US exposure. On a trailing six-week basis, US net selling ranked third-largest over the past decade. In a separate note, GS traders noted that heavy short sales by hedge funds and disposals by systematic investors have increased the potential for a sharp swing higher for stocks in the event of a de-escalation in the conflict.

Elsewhere, Morgan Stanley's Michael Wilson noted that the S&P 500 correction is nearing its final stage even as the Iran war continues — although the risk of Federal Reserve interest-rate hikes still poses a threat. “We think the equity market is less complacent on growth risks than consensus believes,” he said.

Oil may hit a record $200 a barrel if the Iran war drags on until June, with the Strait of Hormuz remaining shut, Macquarie Group Ltd. warned. A conflict that stretches through the second quarter would result in historically high real prices, analysts including Vikas Dwivedi said in a note, outlining a scenario with odds of 40%.

Later on Monday, Fed Chair Jerome Powell will participate later Monday in a moderated discussion at Harvard University, where he may offer clues on how he sees the war affecting the balance of risks to inflation and employment.

European stocks trimmed their advance with the Stoxx 600 now up only 0.2%; utilities and mining shares are leading gains, while travel, leisure and automobile stocks are the biggest laggards. Here are the biggest movers:

European mining shares are the best-performers on the Stoxx 600 benchmark after weekend strikes by Iran on aluminum plants in the UAE and Bahrain
Warsaw’s WIG-Energy index rises as much as 6.9% after power utility Tauron proposed its first dividend since 2015, signaling that the industry is prepared to share its 2025 profits with shareholders after a multi-year pause
Nokia climbs as much as 3% on a Goldman Sachs upgrade to neutral from sell. The broker sees 17% upside thanks to growth opportunities in Optical and IP Networks divisions
Sodexo rises as much as 4.4% following an upgrade to buy at Jefferies, which says the contract caterer’s upcoming results and CMD provide an opportunity to reset investor expectations, before building momentum
Mildef gains as much as 13%, the most since February, after a Dagens Industri column identifies upside factors for the Swedish military equipment maker following share declines
Boohoo Group shares gain as much as 6.7% after the online fashion retailer said it comfortably beat its earnings guidance in FY26 and said it aims to grow them by a double-digit percentage in FY27
Alleima shares decline as much as 6.1%, the most since January, as Danske Bank reiterated its sell rating on the Swedish specialty metals firm
Electrolux shares fall as much as 7.3%, the most since mid-February, after Bank of America cut its recommendation on the Swedish home appliances firm to underperform from buy
Kinnevik falls as much as 5.4%, the most since March 9, after SEB cut its recommendation on the Swedish investment group to hold from buy and nearly halved its price target
Hexatronic slumps as much as 11%, the most since July 2025, after SEB Equities cut its rating on the Swedish fiber optic cable manufacturer to hold from buy
SUSS MicroTec shares pare losses after dropping as much as 19%, the most in five months, following disappointing margin guidance from the German chip equipment company, according to analysts

Earlier, Asian stocks tumbled as investors turned skittish after weekend missile strikes and an expanded US military presence stoked fears of a wider Middle East conflict. The MSCI Asia Pacific Index dropped as much as 2.9%, heading for a third day of declines, as Japan and South Korea led regional losses. Chipmakers TSMC, Samsung Electronics and SK Hynix weighed among the most on the benchmark. Investor mood was dampened after Iran-backed Houthi militants fired missiles at Israel over the weekend. Iran has rejected the US 15-point proposal and disputed Trump’s claims about negotiations, insisting on war reparations in its own five-point plan. China remained a relative haven with the CSI 300 Index closing down 0.2%, while the Shanghai Composite Index ended the day in positive territory.

“I think China A-shares could get more strategic preference compared to rest markets given its increasing stability and resilience in economic policy,” Anna Wu, a cross-asset strategist at VanEck Associates Corp. in Sydney said. “China has successfully built itself as the world’s largest renewable energy factory.”

In FX, the Bloomberg Dollar Spot Index edges higher. The yen is the clear G-10 outperformer, rising 0.4% against the greenback after more jawboning from Japanese authorities. The kiwi is the weakest. Precious metals rise with spot silver up 1.5%. Bitcoin adds 1%.

In rates, treasury futures are near session highs in early US session, tracking stocks closely, with yields lower by as much as 7bp in belly of the curve, as investors weigh the inflationary effects of the war in the Middle East against a their potential to cause an economic slowdown. Yields fall even as oil prices continue to rise as US and Israeli forces press ahead with attacks on Iran. US yields are 3bp to 6bp richer across the curve with belly-led gains steepening 5s30s spread by around 3bp on the day. 10-year near 4.37% outperforms German and UK counterparts. Focal points of US session include comments by Fed Chair Powell at Harvard University. European government bonds surrendered earlier upside with UK and German two-year yields now slightly higher on the day. The turnaround came as traders went from reducing bets on interest-rate hikes by the Bank of England and European Central Bank this year to adding to them. Traders may have been reacting to data that showed euro-area inflation expectations surged in March.

In commodities, brent crude futures are up around 2.7% near $115.60 a barrel while European natural gas futures also rise 2%.

Today's US economic data calendar includes March Dallas Fed manufacturing activity at 10:30am. Ahead this week are consumer confidence, JOLTS job openings, retail sales, ISM manufacturing and — in an abbreviated session on Friday — March jobs report. Fed speaker slate includes Powell in a moderated discussion at Harvard (no text release, Q&A expected) at 10:30am and New York Fed President Williams (4pm)

Market Snapshot

S&P 500 mini +0.6%,
Nasdaq 100 mini +0.6%,
Russell 2000 mini +0.6%
Stoxx Europe 600 +0.3%,
DAX little changed,
CAC 40 +0.2%
10-year Treasury yield -7 basis points at 4.37%
VIX -0.2 points at 30.84
Bloomberg Dollar Index +0.1% at 1220.43, euro -0.1% at $1.1492
WTI crude +1.9% at $101.56/barrel

Top Overnight News

The Pentagon is preparing for weeks of ground operations in Iran, though potential raids would stop short of an invasion. Trump is weighing an operation to extract about 1,000 pounds of uranium from Iran. WaPo, BBG
President Donald Trump said that Iran “gave” the US most of the 15 demands it issued to Tehran to end the war, even as it remains unclear whether either side is negotiating. Publicly, Iran has rejected the US’s 15-point list of ceasefire terms delivered by the Trump administration via intermediaries in Pakistan, and has countered with five conditions of its own — including maintaining sovereignty over the Strait of Hormuz. BBG
Oil climbed, with Brent heading for a record monthly gain, as renewed Middle East strikes and a buildup of US troops heightened concerns. The Iran-backed Houthis launched ballistic missiles at Israel over the weekend. Donald Trump said he’s ready to make a deal with Tehran, but he also told the FT he wants to “take the oil” in Iran. Iran’s control of Hormuz is increasing — 80% of tankers exiting the strait have Tehran’s nod. BBG
Aluminum jumped as Iran’s weekend strikes on smelters in Abu Dhabi and Bahrain threatened a supply crisis. And the energy industry is warning that the biggest supply shock in history is only just beginning. BBG
US Treasury is to meet with domestic and international insurance regulators in coming weeks to discuss recent developments in private credit markets.
The yen and the rupee rose on Monday as Japan stepped up its verbal intervention and India forced banks to unwind positions in the foreign exchange markets. The yen strengthened by 0.4 per cent against the US dollar to trade close to ¥159.7. The rupee jumped at the open, climbing more than 1.4 per cent, but gave up almost all of its gains to trade around 94.6 to the dollar. FT
One BOJ member hinted at the possibility of having to respond to the Mideast war with a bigger rate hike than those recently undertaken, according to a summary of the March 18-19 meeting. BBG
India’s curbs on FX speculation gave the rupee a brief boost before gains faded. BBG
Investors who specialize in scooping up distressed assets at bargain prices have identified a downturn in private credit as their best opportunity since the 2008 financial crisis. These funds, which typically invest in companies with bad balance sheets but viable underlying businesses, have been largely sidelined for a decade as markets surged but are now betting on making money from strains in private credit. FT
The Senate Banking Committee is planning to hold its hearing on the nomination of Kevin Warsh as chair of the Federal Reserve as soon as the week of April 13. Political resistance has held up Warsh’s nomination in the Senate, with Fed Chair Jerome Powell remaining in place even as President Donald Trump presses for a successor willing to cut interest rates faster. RTRS
Some signs of capitulation re starting to emerge in Goldman's PB data. Last week HFs net sold US equities for a 6th straight week and at the fastest pace since Apr ‘25 (-1.6 SDs 1-year), driven by short-and-long sales in Single Stocks and to a lesser extent short sales in Macro Products. On a trailing 6-week basis, the recent US net selling by hedge funds is the 3rd largest over the past decade and starting to approach the levels seen in Apr-May ’20 during Covid and (to a lesser extent) into Liberation Day. GSPB

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were pressured following the geopolitical escalation over the weekend, in which Yemeni Houthis launched missiles towards Israel to enter the conflict for the first time, while the US and Israel also conducted strikes on Iran's largest steel plants and some energy-related facilities. Furthermore, there were some mixed comments from US President Trump, who said the US could take oil in Iran and could take Kharg Island 'very easily', but also stated that they had good negotiations with Iran and claimed Iran responded to the 15-point plan and gave them most points, without providing further details. ASX 200 declined with the downside led by underperformance in tech and financials, although losses were somewhat cushioned by resilience in the energy, defensives and commodity-related sectors. Nikkei 225 suffered with intraday losses of more than 2000 points amid pressure from higher oil prices and jawboning by Japanese officials, while the Summary of Opinions continued to show a hawkish bias, and money markets are currently pricing in a near coin flip between a hike and a hold at the next BoJ meeting in April. Hang Seng and Shanghai Comp were mixed as participants digested a deluge of earnings, including from ICBC, China Construction Bank, BoCom, PetroChina and BYD, while it was also reported late last week that China began probes on US trade practices in retaliation for the US Section 301 investigations.a

Top Asian News

Japan's top FX diplomat Mimura said bold action may be needed if the situation in the Middle East continues, adds hearing that speculative activity is increasing and targeting all fronts in market for action.
Japanese Government spokesperson says closely watching market moves with a extremely high sense of urgency. Currently seeing large volatility in financial markets.
S&P affirms Japan at "A+/A-1"; outlook stable.

European bourses (STOXX 600 +0.3%) are mixed, rebounding from losses seen pre-cash open. The FTSE 100 outperforms, helped by gains in miners as aluminium surged following attacks on producing plants in the Middle East. On the other hand, the DAX 40 remains the laggard. Complex is off best levels after the Iranian Foreign Ministry denied direct negotiations with the US, which slightly hit sentiment. European sectors are mixed. Basic Resources and Utilities top the sector pile, while Travel and Leisure and Banks underperform.

Top European News

German North Rhine Westphalia CPI MoM (Mar) M/M 1.2% (Prev. 0.2%).
German North Rhine Westphalia CPI YoY (Mar) Y/Y 2.7% (Prev. 1.8%).
EU Consumer Inflation Expectations (Mar) 43.4 (Prev. 25.8)
EU Consumer Confidence Final (Mar) -16.3 vs. Exp. -16.3 (Prev. -12.2)

DXY is currently trading within a 100.05-100.34 range, with very mild gains, as the geopolitical situation continues to keep the Dollar stronger. Near-term upside could see the index retest the Monday 16 high at 100.48. The geopolitical situation remains tense, with the weekend events seemingly showing no signs of near-term peace. The Iran-backed Houthis entered the war for the first time, whilst President Trump suggested that the US could take Kharg Island “very easily”. Most recently, an Iranian Foreign Ministry spokesperson says Iran has not had any direct negotiations with America, adding that they did not partake in Pakistan-led meetings. Now attention turns to Fed Chair Powell later.
Given the USD strength, G10s are weaker across the board (ex-JPY). The Antipodeans lag, given the risk-tone and after the PBoC set a weaker yuan fix. The EUR slipped below the 1.1500 soon after the European cash open, and was ultimately little moved to the release of several German State CPI metrics, whereby key areas such as Bavaria and North Rhine Westphalia rose more than what is expected for the Nationwide figure, due at 13:00 BST. As it stands, EUR/USD holds towards the lower end of a 1.1487-1.1521 range.
JPY remains the only currency firmer against the USD this morning. Initially USD/JPY broke above the 160.00 mark (peak 160.46), before reversing back below the mark following hawkish BoJ SOO and continued verbal intervention from Japanese officials. One suggested that they are watching market moves with an “extremely high sense of urgency”.

Central Banks

BoJ Governor Ueda said BoJ will guide policy appropriately by scrutinising how FX moves could affect the likelihood of achieving growth and price forecasts as well as risks. FX is a factor that makes big impacts on the economy and prices, adds will be closely monitoring the FX market.
BoJ Summary of Opinions from March meeting stated that a member said it is appropriate to continue raising interest rates if the economic and price forecasts materialise. Conditions remain accommodative even after rate hikes. Member said the BoJ can keep rates steady for now due to Middle East uncertainty. Need to monitor Middle East developments and wages for rate decisions. Member said future rate hike timing depends on Middle East impact, as well as wages, inflation and financial conditions.
BoJ said that if recent price rises in food prices were to persist, they could exert a sustained upward impact on overall consumer prices. Increases in energy can affect underlying inflation in both directions. Need to pay attention to the possibility that upward price pressures from rising crude may have strengthened as firms become more proactive in hiking prices and wages. Given changes in firms' price-setting behaviour, prices may now be more susceptible to JPY depreciation.
ECB's Stournaras said a longer conflict could mean that the baseline no longer holds.
ECB's Lane said there will be no paralysis on potential rate moves, nor any kind of pre-emption; said this is not a like-for-like situation to 2022.
ECB's Villeroy said ECB is ready to act, but too early to discuss dates for possible rate hikes. Some over-interpretation on markets recently. Sees no risk of banking crisis in Europe.

Fixed Income

Despite crude still being firmer, fixed income has managed to benefit from crude easing off best levels, with both energy and debt benchmarks in the green, departing from the recent inverse correlation. Worth noting that a recent denial of US-Iran talks via the Iranian Foreign Ministry, has led to some mild pressure in the fixed income complex.
USTs gains. Hit a 110-04 trough, lower by two ticks at worst. Since, USTs have rebounded to a 110-17+ peak. Ahead, the docket is headlined by Fed Chair Powell, who is scheduled to speak at Harvard University. Commentary that will be scrutinised for which side of the dual-mandate the Fed is currently most concerned about, and any hints as to whether action should be expected in the near-term.
Bunds hit a 124.48 low early doors, matching Friday's close. Since, the benchmark has been gradually but notably making its way higher, to a 124.88 peak with gains of 40 ticks at best. Though, a short-lived bout of pressure was seen as German State CPIs lifted from the prior, as indicated by mainland consensus; figures due at 13:00BST. More recently, no move to a jump in consumer and selling price expectations.
As is typically the case, Gilts are directionally following peers, but magnitudes are slightly larger. To an 87.60 peak with gains of nearly 50 ticks at best. Specifics for the UK light, awaiting to see what action the government and/or BoE may take to deal with the energy shock.

Commodities

WTI and Brent are stronger this morning. Over the weekend, the Houthis launched their first attacks on Israel since the war began, marking an expansion in the war, while strikes were reported across the region over the weekend. Trump said talks with Iran were progressing, though he also floated seizing Kharg Island, according to the FT.
Most recently, an Iranian Foreign Ministry spokesperson says Iran has not had any direct negotiations with America, adding that they did not partake in Pakistan-led meetings. This spurred some modest strength in crude benchmarks at the time. Brent Jun’26 currently towards the upper end of a USD 106.33-109.46/bbl range.
Spot gold prices are firmer despite a resilient dollar, possibly with some haven appeal returning to the yellow metal and as no signs of an imminent wind down can be seen. Spot gold trades in a USD 4,420-4,550/oz range at the time of writing vs Friday’s USD 4,555/oz peak.
Elsewhere in metals, aluminium rose after Iran struck two production sites in the Middle East, with LME aluminium outpacing peers. Peers, however, are lifted in tandem despite the resilient USD and cautious sentiment across markets. 3M LME copper resides in a USD 12,019.00- 12,259.88/t range at the time of writing.
EU Energy Ministers are to discuss on Tuesday, the coordination of the EU response on energy to the Middle East situation; said energy supply remains relatively protected at this stage. EU needs to take measures to address high energy prices, whilst maintaining functioning of EU electricity market. EU faces no immediate supply shortages, but tightening in diesel and jet fuel market.
A Russian tanker carrying a humanitarian shipment of 100k tonnes of crude oil has arrived in Cuba, IFX reported.
Two China-linked ships, owned by Cosco Shipping (601919 CN), appear to attempt to cross the Strait of Hormuz.
SocGen sees a growing likelihood of Brent topping USD 150/bbl amid the Iran war; said Brent may average USD 125/bbl in April amid the Middle East situation.

Geopolitics

Iranian Foreign Ministry spokesperson says Iran has not had any direct negotiations with America. "What has been discussed are the messages we received through intermediaries that the US wants to negotiate.", Tasnim reports. The materials that were conveyed to us were excessive and unreasonable requests. The meetings held by Pakistan are a framework that they established and we did not participate.
US President Trump said the US could take oil in Iran and could take Kharg Island 'very easily', according to FT. Trump also stated that indirect talks with emissaries are progressing well and a deal could be made fairly quickly.
US President Trump said there were good negotiations with Iran on Sunday, and the US destroyed many targets that day, while they are negotiating directly and indirectly with Iran. Trump said regarding Hormuz that Iran gave them 20 boats of oil to pass through, and he thinks they will make a deal pretty soon, but also said it's possible that they won't. Trump said Iran responded to the 15-point plan and agreed to most points but provided no further details when asked if Iran had responded. He also claimed that Middle East countries are fighting back against Iran.
US President Trump reportedly weighs a military operation to extract Iran's uranium, although the President hasn't made a decision on the operation, according to US officials cited by WSJ.
US President Trump claimed Middle East countries are fighting back against Iran.
Yemen’s Houthis fired missiles at Israel on Saturday morning, marking the first time it has been involved in the war. Houthis said they will continue operations until strikes on Iran and its proxy military groups, such as Hezbollah, stop.
Iranian Parliament's National Security member Borujerdi said the time has come for Iran to withdraw from the Nuclear Non-Proliferation Treaty and the permanent monitoring of the Strait of Hormuz, IRNA reported. According to the plan prepared by the Islamic Council and will be approved as soon as possible, a new system will rule the Strait of Hormuz and traffic will not be possible without the permission of the Islamic Republic of Iran.
Iran's acting Defence Minister told the Turkish counterpart that Tehran will continue to punish aggressors, create deterrence and ensure war will not repeat itself, via IRNA.
In meetings between the commander of the US Central Command in Israel, with the Chief of Staff and senior IDF officials, "the path forward was planned and outlined - for the continuation of the operation.", i24News sources say. "According to the source, the visit was "successful, and the successes so far in the war were also summarized.".
Tehran has agreed to UN's request for safe passage of ships carrying humanitarian aid through Strait of Hormuz, according to IRNA.
The start of firing a new wave of Iranian missiles towards Israel; reported of missiles from Lebanon to Israel also reported.
Local accounts report at least 20 explosions near the oil refinery and petrochemical complex in Abadan, Iran.
Iranian petrochemical facility was targeted in northwestern Tabriz, Iran according to state media. The fire in Iran's Tabris Petrochem was extinguished.
Iraq's Defence Ministry said the Mohamad Alaa air base was attacked by a rocket. An aircraft was destroyed but no injuries reported; Iraq said "We will not hesitate to pursue anyone who dares to harm Iraq's security and sovereignty".
Iranian attack on one service building in a power and water desalination plant in Kuwait caused serious damage.
Media sources report simultaneous explosions and attacks on American positions in several countries, including Bahrain, Saudi Arabia, UAE, Kuwait, and Iraq, according to ISNA.
Successive explosions in American facilities in Kuwait, SNN reported. "According to some sources, the explosions in Kuwait were so formidable and powerful that their sound was clearly heard in the border areas of Iraq.".
Explosions and plumes of smoke rising at the American Victory Base in Iraq's capital of Baghdad.
Ukrainian President Zelensky says Ukraine is ready for a potential Easter ceasefire with Russia, believes there is no deadlock in talks and that Ukraine has received signals from allies on scaling back strikes on Russia's oil sector.
US President Trump said Cuba is going to be next and within a short period of time, Cuba is going to fail.
Chinese President Xi invites Taiwan opposition leader for first visit to the mainland in a decade.

US Event Calendar

10:30 am: United States Mar Dallas Fed Manf. Activity, est. 1.5, prior 0.2
10:30 am: United States Fed’s Powell in Moderated Discussion
4:00 pm: United States Fed’s Williams Speaks on the Economy

DB's Jim Reid concludes the overnight wrap

Oil prices have continued to climb as we start a new week, with Brent crude up another +2.47% this morning to $115.35/bbl. Several factors have contributed, but the Iran-backed Houthi militants joined the conflict over the weekend, launching strikes at Israel and raising fears about a new front in the war. Moreover, the Wall Street Journal have also reported this morning that Trump is weighing a military operation to extract Iran’s uranium. And in an FT interview that’s also been released, Trump openly suggested the US could take the Kharg Island export hub. So there’s still no sign of a clear end to the conflict, and given the various headlines, investors remain fearful about a fresh escalation.

With everything that’s happened, the market impact is becoming increasingly serious. Indeed, the S&P 500 is now down for 5 consecutive weeks for the first time since 2022, back when the global economy was facing a similar stagflationary shock. Moreover, the NASDAQ fell over -3% last week, marking its worst weekly performance since the Liberation Day announcements last year. And this morning, Asian equity markets are also seeing sharp declines for the most part, with the Nikkei (-3.31%), the KOSPI (-2.88%), the Hang Seng (-0.90%) and the CSI 300 (-0.15%) all losing ground as investors price in a more protracted conflict.

Those fears about a longer conflict are evident from the energy futures curve. For instance, 3-month Brent crude futures are up another +1.79% this morning to $100.50/bbl, which would be their highest closing level since the conflict began. So it’s becoming clear that markets are expecting an extended period of high oil prices, with stagflationary implications for the global economy. Interestingly though, the primary concern this morning has shifted back to the growth side rather than inflation. So markets are pricing out the likelihood of imminent hikes and sovereign bond yields have fallen. In fact, overnight index swaps for the next ECB meeting in April currently see a 47% chance of a hike, which is the first time in over a week that’s been below 50%, whilst US 10yr Treasury yields (-4.0bps) are back at 4.39% overnight, coming down from their 8-month high on Friday. Meanwhile for equities, US futures are stable this morning, with those on the S&P 500 unchanged, but they’re more negative in Europe, with DAX futures down -0.65%.

The latest moves come as there’s no obvious sign of a peace deal being reached. Admittedly, there have been ongoing efforts at mediation from other countries, with Iran’s President Pezeshkian speaking with Pakistan’s PM Sharif on Saturday morning. That was then followed by comments from Pakistan’s foreign minister yesterday, who said “Pakistan is very happy that both Iran and the US have expressed their confidence in Pakistan to facilitate the talks.” According to Trump yesterday, he said they were “doing extremely well in that negotiation”. But Trump also said in the FT interview that his “preference would be to take the oil”, so that pointed towards an escalation. And in a separate Washington Post report over the weekend, it said the Pentagon was preparing for weeks of ground operations in Iran. That article suggested it wouldn’t be a full-scale invasion, but could involve raids by a mixture of Special Operations forces and conventional infantry. So for markets, there’s still a huge amount of uncertainty as to what happens next.

Away from the Middle East, we’ve also seen the Japanese yen strengthen overnight, moving up +0.34% against the US Dollar to 159.76. That comes after Japan’s top currency official, Atsushi Mimura, said that they were hearing about speculative activity picking up in FX markets, and that if it continued, “we believe decisive action may soon be necessary.” In addition, the Bank of Japan’s Summary of Opinions from their recent meeting had hawkish elements. For example, there was even a comment they should “pay attention to whether it is necessary to accelerate the pace of policy interest rate hikes beyond previous projections and shift toward neutral or restrictive financial conditions, if tension over the situation in the Middle East were to become prolonged.”

Looking at the week ahead, we should start to learn about the economic consequences of the conflict, as several data releases for March are out which cover the period since the strikes began on February 28. In the US, that includes the monthly jobs report on Friday, where our US economists expect nonfarm payrolls to have risen by +50k in March. As a reminder, US payrolls have been pretty choppy in recent months, and on the current series of revisions they’ve been oscillating between positive and negative readings for every month since May. Last month they were down -92k, but as our economists point out, some of that weakness was a function of a strike at a major healthcare company that’s since ended, along with severe weather that may have temporarily depressed February’s payrolls. So they’re expecting a positive payrolls print for March, although they think the unemployment rate will round up to 4.5% given how close it was last month (4.44%).
Otherwise in the US, the focus will be on whether higher oil prices have started to impact business sentiment and inflation in a meaningful way. So the ISM manufacturing will be in the spotlight, including the prices paid component for whether the inflationary impact has started to filter through. Before that, we’ll also get the Conference Board’s consumer confidence reading tomorrow.

Speaking of inflation, the main highlight in Europe will be tomorrow’s flash CPI print for the Euro Area, which is an important one as the ECB work out what to do. To be fair, the flash print from Spain last Friday was weaker than expected, at +3.3% (vs. +3.8% expected), so that’s slightly eased fears about a very strong print tomorrow. Nevertheless, even with the Spanish number, our European economists are still tracking the Euro Area CPI print at +2.53% year-on-year, up from +1.89% in February. See their weekly preview for more here.

Elsewhere this week, there isn’t too much on the calendar of events as we move towards Easter. Indeed, markets will be closed in several countries at the end of the week for Good Friday. However, we will hear from a few central bankers, including Fed Chair Powell later today, who’s speaking in a discussion at Harvard University.

Finally, to recap last week in more depth, markets fluctuated back and forth amidst varying headlines on the Middle East. Initially there was huge optimism, driven by Trump’s statement last Monday that he’d be postponing military strikes against Iran’s power plants and energy infrastructure for 5 days. So that caused Brent crude oil to fall -10.92% on Monday, closing back at $99.94/bbl. But as the week went on, fears mounted again about a protracted conflict, leaving Brent crude back up at $112.57/bbl, its highest close since July 2022 and narrowly up +0.34% on the week.

With no sign of oil prices falling back, equities took another hit last week for the most part, with the S&P 500 down -2.12% to a 7-month low. That marked its 5th consecutive weekly decline, as well as its biggest weekly loss since October. And the VIX index closed at 31.05pts, its highest since the Liberation Day turmoil last April. Matters weren’t helped by some weaker-than-expected data around the world, with the March flash PMIs generally coming in softer than expected. So the Euro Area composite PMI was down to a 10-month low of 50.5, and the US composite PMI hit an 11-month low of 51.4. Moreover, they also pointed to growing price pressures, which helped push yields on 10yr Treasuries up +4.8bps last week to 4.43%, whilst 10yr bund yields rose +5.1bps to a post-2011 high of 3.09%. That said, central bank pricing did turn marginally more dovish over the week as a whole. So for the Fed, a rate hike by the December meeting was down to a 24% probability, having been at 29% the week before. And for the ECB, a rate hike at the next meeting in April came down from an 80% probability to 52%.

For equities, tech stocks struggled in particular, with the NASDAQ down -3.23% last week, marking its worst week since Liberation Day last year. Indeed, software stocks were a big driver, with that component of the S&P 500 down -7.00% last week as concerns about AI disruption resurfaced. Private credit fears also returned, particularly after Ares Management and Apollo both announced they were limiting withdrawals, which hit the shares of some of the companies in the space. To be fair, the European equity performance wasn’t so bad last week, with the STOXX 600 up +0.35%. But in credit the performance was more negative again, with US HY (+19bps) and Euro HY (+9bps) spreads both widening, whilst US IG (+2bps) and Euro IG (+4bps) spreads also rose.

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