Futures Slump, Erasing Overnight Gains After Iran's Giant Pars Field Attacked; FOMC Looms

Stocks were set to extend gains into a third day as Iraq’s deal to reroute crude via Turkey, bypassing the Strait of Hormuz, eased some supply concerns as Iranian strikes target Kuwait, Saudi Arabia, and UAE, but it all unwound shortly after 7am ET,  following an Iranian report that US and Israeli airstrikes hit its giant South Pars natural gas field and associated infrastructure; Oil and petrochemical facilities in nearby Asaluyeh also came under attack, it added rekindling fears about the impact of the war in the Middle East on inflation. Aa a result S&P futures erased all of their overnight gains, fading what was earlier a 0.6% rise, and trading in the red. Nasdaq also faded all of its gains, and was trading flat at last check. All of this happens just hours before the Fed is expected to keep rates unchanged at 2pm ET today. Bond yields were down 1-2bp into the Fed meeting where the Fed is expected to hold rates steady with the dots potentially reflecting a hawkish outlook; the USD is flat. In commodities oil / natgas prices are lower but are off their overnight lows with Ags / Metals lower. Today’s macro data focus is on PPI and the Fed meeting.

In premarket trading,  Mag 7 stocks are mixed (Nvidia +0.7%, Tesla +0.5%, Microsoft +0.3%, Alphabet +0.2%, Apple +0.2%, Meta Platforms +0.1%, Amazon -0.1%)

• Applied Optoelectronics (AAOI), Lumentum (LITE) and Coherent (COHR) rally after the companies announced updates and spoke to optical demand at the Optical Fiber Communications Conference in Los Angeles.
• CF Industries (CF) falls 4.3% after Mizuho Securities cut its recommendation on the fertilizer company to underperform from neutral after the stock price rallied on expected growth in demand and prices after the Iran war and disruption to the Strait of Hormuz tightened fertilizer supply.
• Constellation Brands (STZ) is up 2.8% after Citi raised the recommendation on the beverage company to buy from neutral, citing a beer topline acceleration and a valuation that’s below historical levels.
• Coupang (CPNG) is up 2.6% after the company said that its collaboration with Nvidia helped it build an AI platform that will support the firm’s e-commerce logistics and delivery services.
• Duolingo Inc. (DUOL) falls 1.3% after Argus Research downgraded the language learning software company to hold from buy.
• Gemini Space Station Inc. (GEMI) is down 1.8% after Citi analyst Peter Christiansen cut its recommendation on the crypto exchange to sell from neutral.
• Grail Inc. (GRAL) rises 4.5% after TD Cowen upgraded the life sciences company to buy from hold, saying the recent selloff creates an “attractive entry.”
• SL Green (SLG) is up 2.7% after Deutsche Bank upgraded the office REIT to buy from hold.
• Swarmer Inc. (SWMR) jumps 35%, set to extend gains after the artificial intelligence drone software company notched the best trading debut for a US stock in nearly a year.
• T1 Energy (TE) is up 3.9% after the solar equipment maker said it secured 50 MW of grid power in Norway for a data center.

In corporate news, Lululemon forecast a second-straight year of profit declines, further pressuring the brand that’s dealing with product mishaps while searching for a new CEO.  AI remains in focus, with Asian memory stocks extending gains after Reuters reported Amazon’s CEO seeing ⁠AWS reaching $600 billion in annual sales — double his own prior estimate —  and as Samsung considers a shift toward multi-year contracts for memory chips. Wall Street will be looking for any commentary from Micron on how long prices could remain elevated, when the company reports results after the close. Alibaba is raising prices for its AI computing and storage products by as much as 34%. AI stocks in China got a lift after Nvidia Chief Executive Officer Jensen Huang said OpenClaw, an agent that uses large language models to perform tasks like hailing a ride and booking restaurants, was “definitely the next ChatGPT.”

Markets remain on high alert over the war and the risk that a near-closure of the Strait of Hormuz stokes inflation. How policymakers respond is now top of mind for investors, with the Fed expected to hold rates unchanged for a second straight meeting.

Iranian attacks on Israel and Arab states in the Persian Gulf continued overnight into Wednesday, while President Trump said the US could end the war with the Islamic Republic “in the near future.” The attacks followed Iran confirming the assassination of its security chief, Ali Larijani, in an Israeli strike. Meanwhile, sentiment deteriorated rapidly and oil prices spiked to a session high after Iran said shortly after 7am ET that US and Israeli airstrikes hit its giant South Pars natural gas field and associated infrastructure. Oil and petrochemical facilities in nearby Asaluyeh also came under attack, it added. An attack, if confirmed, would mark the first time Iran’s upstream oil and gas facilities have been targeted in this war. The field is shared with Qatar.

Israel said Wednesday that Iranian intelligence minister, Esmaeil Khatib was killed. Earlier, President Donald Trump said the US could end the war with the Islamic Republic “in the near future.”

“Equity markets are following the oil price quite closely, and at this stage what we’re seeing is perhaps that they are pricing in the most positive outcome,” said Nina Stanojevic, investment specialist at St. James’s Place. “That, I think, leaves equity markets quite vulnerable.”

Even if oil prices stabilize, they remain elevated and the longer they stay there, the greater the macro implications, which could be a source of focus for this week’s busy central bank slate. 

Today at 2pm ET, the Fed is expected to hold its benchmark interest rate steady. Investors will seek insight on how the central bank weighs pressures on both sides of their mandate — and whether responding to the threat of slower growth could add fuel to inflation that’s been above the Fed’s target for five years running. Ahead of Fed’s policy rate announcement, overnight swaps price in no hike premium and a combined 25bps of easing by the end of the year. Into the meeting, traders have been deleveraging in futures and unwinding hawkish policy hedges which have profited from the recent hawkish shift in policy pricing amid rising oil prices. Fed Chair Jerome Powell will likely emphasize that officials need more time to see how long the conflict with Iran lasts and to assess how it might ripple through to growth and inflation. He’s also likely to highlight the elevated level of uncertainty and the Fed’s need to keep its options open. Our full FOMC preview can be found here. 

“The market wants to understand where the Fed is leaning next,” said Stephanie Niven, portfolio manager at Ninety One. “Any shift in the median dot, any slight changes, will be really focused on.”

In geopolitics, Japan’s Prime Minister Sanae Takaichi warned she’s facing an “extremely difficult” meeting with Trump on Thursday, after he criticized the country for rebuffing his demand for warships to help secure the Strait of Hormuz. Speaking of Hormuz, it remains effectively shut with just three total commercial vehicle crossings in the last week.

Bank of America equity derivatives strategists warn that the current gap between realized and implied volatility is unusually wide, flagging “rising stress in still-complacent markets.” Equity resilience suggests sentiment has not reached peak bearishness and the worst is likely not over, writes Bloomberg’s Skylar Montgomery Koning. 

In Europe, the Stoxx 600 touched its highest level in more than a week before trimming the advance. It rose 0.5%, rising for a third day and keeping the global equity rally going after a broadly positive session in Asia. Banks and industrials lead gains in Europe, while the food and beverage sector is among the biggest laggards.Here are some of the biggest movers on Wednesday: 

• Diploma shares rally as much as 18% to their highest intraday level on record after the building components supplier boosted its organic revenue forecast for the full year.
• Bollore shares rise as much as 16%, the most since February 2021, after the French conglomerate announced an exceptional dividend payment.
• Softcat shares rise as much as 9.9%, the most in a year, as first-half results prove much better than analysts expected and the IT services provider lifts its full-year guidance.
• Commerzbank shares climb as much as 6.3% after UniCredit’s chief executive officer said the main purpose of Monday’s fresh takeover bid for the German lender was to “break the stalemate” and lead to a “common plan” between stakeholders.
• PPC shares gain as much as 9.6% in Johannesburg, the most in nearly a year, after the cement maker reported a 22% jump in adjusted Ebitda for the 10 months through January on the company’s strategic plan gains.
• Logitech shares drop as much as 5.9% after UBS downgrades the Swiss maker of computer peripherals, seeing signs of easing in the positive earnings revision cycle and weaker signals in the gaming market.
• HelloFresh shares drop as much as 15% to a record low after the meal-kit company’s guidance for this year’s sales and profits came in well below analyst expectations.
• Axfood shares fall as much as 5.3% after Handelsbanken joined Danske Bank in downgrading the Swedish food retailer and wholesaler, saying the case for a buy rating has played out as expected after a 20% gain since December.
• Verbund shares drop as much as 5%, the most since November, after the renewable electricity firm gave 2026 guidance that Citi said implied significant downgrades.

Asian shares climbed 1.9%, led by gains in South Korea’s Kospi as Samsung Electronics Co. jumped more than 7%.  The MSCI Asia Pacific Index gained as much as 2.2%, adding to Tuesday’s 0.9% advance. Shares of chip giants TSMC, Samsung and SK Hynix were the biggest contributors to the rally. Korea’s benchmark jumped 5% as authorities announced more measures to enhance shareholder value.  

In FX, the Bloomberg Dollar Spot Index slipped 0.1%, pushing losses into a third-straight day

In rates, European bonds are holding higher and Treasuries also edge up although futures trade off best levels into the early US session leaving yields richer by 1bp to 2bps across the curve. US session includes PPI data and the Federal Reserve policy interest rate announcement at 2 p.m. New York. Treasuries gains led by intermediates, flattening 2s10s spread by 1.5bps and adding to Tuesday’s tightening move. The 2s10s curve now at around 50.5bp trades just inside the yearly lows at 49.6bp reached March 12. US 10-year yields trade around 4.18% with gilts outperforming by 2bp in the sector.  The two-yield Treasury yield slipped 1bp to 3.66%; traders are betting on 26bps of Fed cuts by year-end, down from around 60bps at the end of February. On Thursday, Treasury sell 10-year TIPS in a $19 billion reopening auction

In commodities, oil erased an earlier fall with Brent crude futures now flat on the day and back around $104 a barrel, after Iran announced that its oil and gas assets in the South Pars oil field were under attack. Precious metals dip.  Based on a study of the past six supply-side oil shocks, “on average it takes around four to five months” for crude and stock markets to come to pre-shock levels, David Chao, a global markets strategist at Invesco said in a Bloomberg TV interview. The firm is “sticking with our outlook” of preferring US cyclical small cap stocks and emerging market equities, he added.

Today's US economic data slate includes February PPI (8:30 a.m. New York time), January factory orders and durable goods orders (10 a.m. New York time), January TIC flows (4 p.m. New York time), and of course the FOMC decision at 2pm.

Market Snapshot

• S&P 500 mini +0.3%,
• Nasdaq 100 mini +0.5%,
• Russell 2000 mini +0.6%
• Stoxx Europe 600 +0.5%,
• DAX +0.7%,
• CAC 40 +0.9%
• 10-year Treasury yield -2 basis points at 4.18%
• VIX -0.7 points at 21.65
• Bloomberg Dollar Index little changed at 1206.78,
• euro little changed at $1.1533
• WTI crude -1.9% at $94.37/barrel

Top Overnight News

• US President Donald Trump wants to reopen the Strait of Hormuz to ease a growing global energy crisis, but won't achieve that easily without a ceasefire in the war on Iran. European and Asian partners are reluctant to send warships to help reopen the strait, questioning whether a handful of ships would make any difference against Iran's ability to threaten vessels. BBG
• Battered by Iranian strikes and the disruption of the Strait of Hormuz, the United Arab Emirates and some fellow Persian Gulf states have come to view Iran’s theocracy as an existential enemy. They now want the regime they once courted to be neutered, if not dismantled, when the conflict ends—so the ordeal is never repeated. WSJ
• The Middle East war has turned container shipping into a “wild west”, with carriers adding thousands of dollars in charges and dumping containers at far-flung ports, according to removal companies and customers. FT
• South Korean stocks jumped after authorities moved to restrict publicly traded companies from listing certain subsidiaries, curbing a practice long blamed for diluting shareholder value. BBG
• Major Japanese companies, including Toyota, offered big pay hikes in annual wage talks on Wednesday, reflecting strong pay momentum for a fourth consecutive year, although uncertainty from the Middle East conflict clouds the outlook. RTRS
• The European Commission is set to delay the impact of a global banking reform as it seeks to stop EU lenders from being put at a disadvantage by US moves to cut capital requirements for big banks. According to two officials familiar with the plans, Brussels will after Easter adopt legislation to neutralize the short-term impact of the Fundamental Review of the Trading Book (FRTB) — a key component of the Basel III framework governing market risk. FT
• The EU is planning to overhaul its merger rules to curb national powers to block corporate takeovers in a bid to help European companies build the scale to compete with US and Chinese rivals. The proposed reforms reflect growing frustration in Brussels that capitals intervened in a series of significant corporate deals, often to protect national champions at the expense of the single market. FT
• Microsoft is weighing legal action against Amazon and OpenAI over a $50bn deal that could breach its exclusive cloud partnership with the ChatGPT maker, setting up a clash between the Big Tech rivals. FT
• Bond traders are unwinding bets that drove markets to price out Fed rate cuts this year. The central bank is expected to hold rates steady for a second straight meeting today and Jerome Powell’s comments on the risks to the economy from the Iran conflict will be in the spotlight. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly higher following the positive handover from Wall Street and as oil prices retreated, while markets now await a flurry of upcoming central bank policy decisions, including from the FOMC later today. ASX 200 gained with the help of strength in tech, utilities and real estate, but with gains limited amid weakness in health care and the consumer sectors following the recent central bank rate hike, while money markets are currently pricing a coin flip for a third consecutive hike in May. Nikkei 225 climbed back above the 55,000 level amid several positive factors, such as mostly better-than-expected trade data, which showed a surprise surplus and with exports topping forecasts. US and Japan are also set to agree on the joint development of rare earths, copper, and lithium at a summit on Thursday, while they will jointly develop AI shipbuilding robots. Furthermore, participants mull over the first wave of corporate responses to the Shunto wage demands, and the BoJ also kick-started its 2-day policy meeting. Hang Seng and Shanghai Comp were mixed with weakness seen in auto stocks and China's oil majors, while reports that multiple Chinese companies were said to have received approval from authorities to purchase NVIDIA H200 AI chips failed to inspire the mainland.

Top Asian News

• South Korea's financial regulator said will expand the KRW 100tln market stabilisation programme if needed. To prepare specific plans to ban dual listing of parent companies and subsidiaries.

European Bourses are broadly higher with the IBEX 35 leading on bank strength, while the CAC 40 also gains. The SMI underperforms as Logitech declines following a downgrade at UBS. Softer oil prices, after the resumption of exports through Ceyhan port, provide a modest tailwind to equities. Sectors show a positive bias. Banks outperform amid reports the EU may delay stricter capital requirements, lifting names such as Banco Santander, Société Générale, and Intesa Sanpaolo. Food, Beverages & Tobacco lag after HelloFresh guides adj. EBITDA below expectations. Elsewhere, Heidelberg Materials gains on a double upgrade at Morgan Stanley, Unilever slips on reports it is exploring a food division separation, and Diploma surges after raising organic revenue growth guidance.

Top European News

• EU Inflation Rate YoY Final (Feb) Y/Y 1.9% vs. Exp. 1.9% (Prev. 1.7%, Low. 1.8%, High. 1.9%).
• EU Inflation Rate MoM Final (Feb) M/M 0.6% vs. Exp. 0.7% (Prev. -0.6%, Low. -0.6%, High. 0.7%).
• EU Core Inflation Rate YoY Final (Feb) Y/Y 2.4% vs. Exp. 2.4% (Prev. 2.2%).
• Swiss SECO Forecasts: Cuts 2026 GDP growth to 1.0% (prev. 1.1%), maintains 2027 GDP forecast at 1.7%; 2026 CPI raised to 0.4% (prev. 0.2%), 2027 CPI maintained at 0.5%.
• South African Inflation Rate YoY (Feb) Y/Y 3.0% (Prev. 3.5%).

Trade/Tariffs

• Japanese PM Takaichi said it will be tough regarding her visit to meet US President Trump on Thursday, while she will do her best to protect Japan's interests.
• Japanese PM Takaichi is to meet US President Trump on March 19th, Nikkei reported.
• Japan-US summit joint statement is said to agree up to JPY 11tln as second investment batch, according to NHK

FX

• DXY is flat in a tight 99.46–99.71 range after two sessions of declines, tracking softer oil prices. Focus turns to the Federal Reserve decision, where rates are expected to be maintained, with markets not pricing cuts until Q4 2026 and Chair Powell likely to avoid firm guidance given geopolitical uncertainty.
• EUR and GBP trade muted against the dollar amid limited fresh catalysts. EUR/USD trades within 1.1518–1.1549, while GBP/USD sits in a 1.3341–1.3375 range as markets look ahead to the ECB and BoE tomorrow, both expected to signal a data-dependent stance.
• JPY is choppy ahead of the BoJ decision overnight, where no policy change is expected. USD/JPY briefly dips to 158.57 before stabilising near 159.00, with some late pressure as oil prices ease.
• Antipodeans are quiet with a slight upward bias. AUD/USD holds recent gains following the RBA decision, while broader macro drivers remain limited.

Fixed Income

• UST is firmer in contained trade, tracking the broader fixed income bid driven by softer energy and yield expectations. Futures trade in a 111-30+ to 112-07 range, with focus squarely on the Federal Reserve decision, where updated projections and Chair Jerome Powell’s tone will guide expectations on how the Fed assesses Middle East-driven inflation risks.
• Bund is stronger, with gains of up to 34 ticks and a high of 126.81 as energy-driven yield pressure eases. Upside levels are seen at 127.00, then 127.20–127.53, with a gap toward 128.00. Focus turns from final HICP (no reaction seen) and German supply to the FOMC as a signal for how the European Central Bank may position policy amid the energy shock.
• Gilt outperform, rising over 50 ticks to a 90.26 peak, continuing the recent trend of UK strength versus peers. Resistance sits at 90.85 (11 March high). Attention remains on the FOMC as a precursor to Thursday’s BoE decision, alongside domestic political noise after criticism of UK PM Starmer from former Deputy PM Rayner.
• Australia sold AUD 1bln 4.25% October 2036 bonds, b/c 4.14, avg. yield 4.9122%.

Commodities

• Crude futures are softer, but off APAC lows as markets digest geopolitical updates without fresh escalation. Iran confirms the death of security chief Ali Larijani, while officials rule out a ceasefire, maintaining elevated uncertainty. Elsewhere, Iraq and Kurdish authorities agree to resume exports via Ceyhan, adding some supply relief, while private inventory data shows a crude build and gasoline draw. WTI trades within USD 91.45–95.65/bbl and Brent within USD 100.34–103.67/bbl.
• Spot gold trades rangebound around the USD 5,000/oz level, balancing oil-driven inflation risks against persistent geopolitical uncertainty. Trades within a USD 4,977.21–5,016.20/oz range, with silver also contained.
• Base metals are softer, extending the recent pullback as a firmer dollar and rising inventories weigh. Copper trades in a narrow USD 12,642–12,803/t range, with positioning also lighter on the bullish side.
• Senior NATO military official pushes for extension of alliance's pipeline system towards the east to supply NATO troops in a conflict with Russia. Adds that the NATO pipeline network should be extended to Poland, the Baltic states, Finland and Romania.
• South Korea envoy said to receive 18mln barrels of crude oil from UAE and that UAE pledges to give number 1 priority to South Korea for crude supply.
• Indian Government official says they are to give 10% more commercial LPG to states if they help if the long-term shift from LPG to piped gas, adds that LPG situation is still of concern.
• India's government is in talks with Iranian authorities for safe passage of six India-bound vessels carrying LPG and two crude oil carriers, according to two people aware of the matter cited by Mint.
• Libya's Sharara oilfield is gradually shutting down following a pipeline explosion.

Geopolitics

• Several US officials described President Trump as the most bullish person in the White House on going to war with Iran, Axios reported. Three advisors to POTUS believe that Trump would want to end major operations before Israeli Prime Minister Netanyahu. However, the article noted that the leaders appear closer than ever.
• US President Trump reiterated that they are way ahead of schedule regarding Iran.
• Israel attempted to assassinate Iran's Intelligence Minister Khatib overnight, Jerusalem Post reported citing an Israeli official; still awaiting results of the target, however the initial assessment is that he has been eliminated.
• Iran's Foreign Minister said the new protocol [in the Strait of Hormuz] to ensure safe passage would be under "specific conditions" and based on Iranian and regional interests.
• Iran's Foreign Minister said Iran will target US forces wherever they assemble, including near urban areas, he understands neighbours' concerns and holds the US responsible for the conflict.
• Iranian Foreign Minister has ruled out a ceasefire.
• Iranian army spokesperson said armed forces will make use of more weapons that were not previously used in war, state TV reported.
• Iran targets Tel Aviv with missiles carrying cluster warheads in retaliation for the killing of security chief Larijani, while Iran's army vows decisive and regrettable revenge for Larijani killing.
• Australian PM Albanese said an Iranian projectile hit near an Australian airbase in the UAE, although no personnel were injured.
• Saudi Arabia is to host a meeting on Wednesday of Arab and Islamic foreign ministers in Riyadh on regional security according to the foreign ministry.
• USS Gerald R. Ford is to head to Crete for repairs after a large non-combat fire last week, while USS George H.W. Bush is to relieve USS Gerald R. Ford in the Middle East.
• Analysts warned that Iran is capable of sharply escalating its attacks on energy infrastructure in the Gulf, according to FT.
• US Secretary of State Rubio called New York Times report on Cuba fake news and denies the US is seeking to oust the Cuban president.

US Event Calendar

• 8:30 am: United States Feb PPI Final Demand MoM, est. 0.3%, prior 0.5%
• 8:30 am: United States Feb PPI Ex Food and Energy MoM, est. 0.3%, prior 0.8%
• 8:30 am: United States Feb PPI Final Demand YoY, est. 3%, prior 2.9%
• 8:30 am: United States Feb PPI Ex Food and Energy YoY, est. 3.7%, prior 3.6%
• 10:00 am: United States Jan Factory Orders, est. 0.1%, prior -0.7%
• 10:00 am: United States Jan F Durable Goods Orders, est. 0%, prior 0%
• 10:00 am: United States Jan F Durables Ex Transportation, est. 0.4%, prior 0.4%
• 2:00 pm: United States Mar 18 FOMC Rate Decision 
• 4:00 pm: United States Jan Total Net TIC Flows, prior 44.9b

DB's Jim Reid concludes the overnight wrap

Saying goodbye to Cape Town today and heading to Johannesburg for my first ever visit. I’ve been to Cape Town five times: three to watch England lose at cricket, and twice on business. The second trip, around 20 years ago, featured the only time I’ve ever fainted. I was standing up on a plane, passed out, cracked my head on a food trolley, and ended up heavily bandaged with an ambulance meeting both the plane and me on the runway. I thought that might ruin the holiday, but I underestimated just how bad England were going to be at cricket on that tour. That was worse. The last visit was two years ago, right in the middle of the wettest period Cape Town had seen in a generation. By comparison, this trip has been relatively calm and lovely. So far.

There is also a bit more calm in markets at the moment and a small hint that there is a decoupling from the price of oil as the last 24 hours have seen more positive risk markets and lower yields in spite of Brent crude (+3.20%) closing above $100/bbl for a fourth consecutive session, at $103.42/bbl. Optimism has been boosted a bit more this morning as oil is back down a couple of percent seemingly on an Iraq deal with Turkey to resume oil exports through their territory and thus not requiring the Strait of Hormuz. US and European equity futures are up half a percent and Asian stocks are mostly higher with the KOSPI back to its incredible Jan/Feb march and up +4.46% with the Nikkei +2.68%, both helped by tech stocks.

This follows yesterday's hopes growing that the Fed and other central banks meeting this week wouldn’t sound too hawkish in response to recent developments. We’ll have to see what the Fed say tonight, but in the meantime, the S&P 500 (+0.25%) built on Monday’s gains, whilst yields on 10yr Treasuries (-1.8bps) and bunds (-4.6bps) also fell back. Indeed, the VIX index (-1.14pts) closed at its lowest in nearly two weeks, at 22.37pts. That's less than a point above the pre-Iran high for the year.

The broader relief rally was partly driven by more moderate moves in oil prices than we’d seen of late. In fact, it was the first day since March 5 that Brent traded within a range of less than 5%. We also saw comments from US officials that the war might soon be over soon, with Trump saying that they were “not ready to leave yet, but we will be leaving in the near future”. And separately, NEC Director Kevin Hassett said on CNBC that the expectation was still for a “four-to-six week operation”. However, there was no imminent sign of de-escalation with news of Iran striking energy infrastructure targets in the Gulf and that an Israeli strike had killed Iran’s national security chief Ali Larijani. That backdrop left oil prices higher on the day, though Brent did fall back from a high of $104.98/bbl before the European open.

Meanwhile we’re still seeing barely any traffic getting through the Strait of Hormuz, and US allies have maintained their reluctance to get involved in reopening the Strait. For example, French President Macron said yesterday that “France will never take part in operations to open or free the Strait of Hormuz in the current context”. That reluctance from US allies was acknowledged by Trump, who said in a post yesterday that “we no longer “need,” or desire, the NATO Countries’ assistance”. Clearly the risk is that after the conflict fades, the tension between Trump and his fellow NATO leaders increases again with uncertain consequences. That's a story for another day but it is a genuine concern.

Looking forward, we’ll start to hear more from central banks today about the likely response, as we kick off the latest round of monetary policy decisions. Indeed, this is the most bunched set of decisions in years, as in the space of 24 hours, we’ll get decisions from the Fed tonight, followed by each of the ECB, Bank of Japan and the Bank of England tomorrow. All of them are widely expected to hold rates, but there’s scope for plenty of headlines, as the Fed’s blackout period means we haven’t actually heard from the FOMC since the first week of the conflict, back when oil prices were still beneath $100/bbl and there were still wider hopes for a swift end to the conflict.

In terms of what to expect today, our US economists think the Fed’s communications will emphasise elevated uncertainty, with Chair Powell likely to avoid any strong signals about near-term policy. They also think the Summary of Economic Projections will be little changed, and will continue to signal one more rate cut for 2026. However, they do think that there’ll be upward revisions to headline and core PCE inflation for this year, so that’ll be one to keep an eye on. Indeed, core PCE was already at +3.1% in January, even before the recent uptick in gasoline prices because of the war. 

Ahead of the Fed’s decision, investors continued to expect one Fed rate cut this year, with the amount of rate cuts priced by December holding steady at 26bps (-0.4bps on the day). While 2yr yields (+0.4bps) were little changed at 3.68%, US Treasuries rallied further along the curve, with the 10yr yield (-1.8.bps) down to 4.18% and 30yr down -2.6bps to 4.84%. Interestingly, those moves came despite growing pessimism on the inflation side. For instance, the 1yr US inflation swap rose another +14.7bps yesterday to 3.13%, the highest since October. That came as investors also priced in a longer period of higher oil prices, with 6-month Brent futures (+3.26%) rising to $86.12/bbl. So it was lower real rates rather than inflation expectations which drove Treasury yields lower, with the 10yr real yield (-4.4bps) seeing its biggest daily decline since the Iran strikes began.

Earlier in Europe there was a similar pattern, with markets pricing in a more dovish path for rates and lower yields, even as inflation swaps moved higher. So the amount of ECB hikes priced by December fell another -7.5bps to 33bps. And in turn, yields on 10yr bunds (-4.6bps), OATs (-6.1bps) and BTPs (-6.9bps) all moved lower. Similarly to the US, real rates declined, as the German 10yr real yield (-1.2bps) fell to its lowest level since last April, at just 0.51%. That came as data continued to disappoint, with the expectations component of the German ZEW survey slumping to just -0.5 in March (vs. 39.2 expected). That’s its lowest level since the Liberation Day turmoil last April, which just shows how the Middle East conflict is already affecting sentiment.

That backdrop saw equities put in a decent performance, as declining volatility and hopes for more dovish policy outweighed concerns about higher oil prices. So the major indices advanced on both sides of the Atlantic, with the S&P 500 (+0.25%) posting back-to-back gains for the first time since the strikes began. Once again, energy (+1.02%) led the gains, and that component of the S&P 500 hit another record high yesterday. But cyclical sectors more broadly did well, with consumer discretionary (+1.00%) and financials (+0.51%) also outperforming. Meanwhile in Europe, the STOXX 600 (+0.67%) had its best day in the last week, with energy similarly leading the way.

Early morning data showed that Japan’s exports grew at a slower pace last month, as tariffs weighed on car shipments to the US and as demand in China slumped due to the Lunar New Year holidays. The value of overall exports rose +4.2% in February from a year earlier, after a big jump of +16.8% in the previous month albeit beating market expectations of a +1.9% rise. Meanwhile, imports rebounded +10.2%, a little below the consensus estimate of +11.3%, as the trade balance swung to a surplus of ¥57.3 billion against an anticipated deficit of -¥460.0 billion. Yields on the 10yr JGBs are -4.7bps lower trading at 2.22% as I type, mirroring the global move of the last 24 hours.

Looking at the day ahead, and the main highlight will be the Federal Reserve’s policy decision and Chair Powell’s subsequent press conference. In addition, the Bank of Canada will also announce their decision. Otherwise, US data releases include PPI for February, and factory orders for January.