Oil Shock and Inflation Reprice Global Markets (13 – 17 April)

Global sentiment shifted this week as markets balanced high-stakes diplomacy in Islamabad with a severe energy supply squeeze. While talks between US and Iranian officials provided a fragile glimmer of hope, the US-led blockade of the Strait of Hormuz, triggered by a breakdown in weekend negotiations, sent Brent crude surging 8% to approximately $103/barrel.

The macro impact is now visible: US headline inflation jumped to 3.3% in March, the highest since May 2024. This energy-driven spike has forced a hawkish recalibration in bond markets, with the UK 10-year gilt remaining near multi-year highs and the German Bund yield climbing back toward its 15-year peak of 3.13%.

Market Drivers & Catalysts

• Strait of Hormuz Blockade: A new US blockade targeting vessels linked to Iranian ports has severely tightened supply. Brent crude recovered all of last week’s losses with a Monday surge of 8%.
• Inflationary Breakout: US headline CPI hit 3.3% annually (up from 2.4%), with monthly growth of 0.9% marking the largest jump since mid-2022.
• Diplomatic High-Wire Act: Fragile hopes rest on Islamabad negotiations, while the Euro and Pound were supported by a 1.5% weekly gain on optimism regarding Russia-Ukraine peace progress.
• Repricing Central Banks: Sticky inflation has cooled Fed rate-cut bets, while Eurozone markets are now pricing in at least two ECB rate hikes by 2026.
• BOJ Intervention Watch: Japan’s 10-year yield is holding at 2.4%, its highest since 1998, as markets anticipate a potential rate hike at the April 28 policy meeting.

Fixed Income

• US 10-Year Treasury Note Yield: Rose to 4.31%. Recovering from three-week lows, the yield reacted to March CPI data and a 0.9% month-over-month jump in consumer prices.
• UK 10-Year Bond Yield: Ended the week at 4.77%. Borrowing costs remain elevated as markets price in a more hawkish Bank of England stance with at least one rate hike expected by 2026.
• Japan 10-Year Government Bond Yield: Reached 2.4%. Despite a temporary US-Iran ceasefire easing oil prices earlier, yields remain near 28-year highs on inflation fears.
• Germany 10-Year Bund Yield: Climbed above 3.0%, gaining 2.5 basis points this week. The move brings it closer to the 15-year high of 3.13% set in late March.

Commodities

Gold climbed to $4,780/oz, a weekly gain of 2%. This marks a third straight weekly rise, supported by a weaker dollar (DXY below 99) and haven demand.

Silver increased to $75.6/oz, advancing more than 4% over the week. Demand is being driven by bets on deeper eventual Fed cuts once current energy-led inflation subsides.

Currencies

• U.S. Dollar Index (DXY): Remained below 99. Despite a 3.3% CPI print, the dollar was pressured by gains in the Euro and Pound as geopolitical safe-haven demand shifted slightly toward diplomatic optimism.
• Euro: Rose above $1.17, a weekly gain of nearly 1.5%. Progress in Ukrainian negotiations provided a significant rise to the single currency.
• British Pound: Climbed above $1.34. Sterling mirrored the Euro’s 1.5% weekly gain, supported by hawkish BoE pricing and broader geopolitical relief.
• Japanese Yen: Stabilized near 159 per dollar. While recently supported by a temporary ceasefire, the yen remains down about 2% since the start of the conflict.

Economic Data Highlights

• US Inflation Rate (March): Annual inflation hit 3.3% (vs 2.4% previously). Core inflation reached 2.6%, while energy-led monthly CPI jumped 0.9%.
• US GDP Growth (Q4 2025): Revised down to an annualized rate of 0.5%. Overall growth for the full year 2025 was reported at 2.1%.
• US Personal Spending (Feb): Rose 0.5% ($103.2 billion). However, “real” spending adjusted for inflation increased by only 0.1%, indicating stagnant volume growth.
• China Inflation Rate (March): Slowed to 1.0% (down from 1.3% in February). Monthly CPI fell 0.7%, marking the first contraction since November.

Macro Calendar Highlights

• Bank of Japan (BOJ) Interest Rate Decision (April 28)
• Outcome of US-Iran Diplomatic Talks in Islamabad
• OPEC+ Production Adjustment Update
• Eurozone Flash GDP Estimate