War Drives Repricing (30 March – 3 April)

Global markets remained in a state of high-tension equilibrium this week as President Trump extended a strike deadline to April 6, providing a 10-day window for a potential deal with Tehran. Despite this temporary pause on targeting energy sites and the passage of 10 tankers through the Strait of Hormuz, market skepticism remains high. Brent crude surged past $111/barrel, its highest since 2022, as the Pentagon weighed further troop deployments and Iran rejected the latest US 15-point plan.

The "higher-for-longer" narrative has transitioned into a "higher-for-now" reality for global yields. The UK 10-year gilt breached 5% for the first time since 2008, and German Bund yields hit a 15-year high. Investors are aggressively repricing central bank paths, shifting from bets on 2026 rate cuts to anticipating multiple hikes from the ECB and BoE to combat energy-driven inflation.

Market Drivers & Catalysts

• The April 6 Deadline: President Trump’s 10-day extension for a "war-ending deal" has created a temporary reprieve, though military buildups continue on both sides.
• Energy Supply Vulnerability: The effective closure of the Strait of Hormuz continues to disrupt one-fifth of global oil flows, keeping Brent crude at an eight-month peak ($111+).
• Repricing Central Banks: Persistent inflation, highlighted by Spain’s 3.3% HICP, has flipped the script for the ECB and BoE, with markets now bracing for up to three rate hikes this year.
• Yen at the Brink: The Japanese yen is hovering near the 160 intervention level. Finance Minister Satsuki Katayama has signaled "bold measures" are ready to protect the oil-dependent economy.
• US Manufacturing Resilience: The S&P Global US Manufacturing PMI rose to 52.4, supported by domestic demand and strategic stockpiling amid Middle East concerns.

Fixed Income

• US 10-Year Treasury Note Yield: Climbed to 4.48%, the highest since July 2025, before settling at 4.42%. Fiscal pressures from the military buildup and reduced Fed rate cut expectations continue to pull yields higher.
• UK 10-Year Bond Yield: Jumped above 5.0%, finishing March up a staggering 75 basis points. A collapse in consumer confidence and a sharp hawkish pivot from the Bank of England have defined the UK debt market this month.
• Japan 10-Year Government Bond Yield: Rose to 2.37%, its highest since 1999. Analysts are now pricing in a potential hike to 1% at the April 28 BOJ meeting to defend the currency against energy-imported inflation.
• Germany 10-Year Bond Yield: Climbed above 3.1%, a 15-year high. The move reflects a broader European shift away from easing, fueled by the energy shock and sticky regional inflation.

Commodities

Gold climbed back above $4,500/oz. The metal saw a relief rally following Trump’s deadline extension, though it remains capped by rising real yields and a strong US dollar.

Silver rose to $70/oz, rebounding from recent sharp losses. While industrial demand remains pressured by cost surges, the 10-day diplomatic window has prompted some short-covering.

Currencies

• U.S. Dollar Index (DXY): Remained near 100, posting a weekly gain of 0.3%. The dollar is drawing strength from its safe-haven status and the relative resilience of the US economy.
• Euro: Slipped to $1.152. Skepticism over indirect talks in Pakistan and a jump in Spanish inflation to 3.3% have kept the single currency on the defensive.
• British Pound: Drifted toward $1.33. Weak retail sales (-0.4%) and the prospect of the BoE being forced into "stagflationary" rate hikes have dampened appetite for sterling.
• Japanese Yen: Steadied around 159.5. Markets are on high alert for direct ministry intervention, as the 160 level is viewed as the final line of defense for the yen.

Economic Data Highlights

• US Manufacturing PMI (March): Rose to 52.4, beating the 51.3 forecast. While output and new orders are strengthening, input costs are surging at the fastest pace in months.
• US Initial Jobless Claims: Rose to 210,000, in line with expectations. Continuing claims fell to 1,819,000, the lowest in nearly two years, suggesting a tight but cooling labor market.
• UK Inflation (Feb): Annual inflation held steady at 3%, but core inflation unexpectedly ticked up to 3.2%, reinforcing the case for BoE tightening.
• Japan Inflation (Feb): Eased to 1.3% (lowest since 2022). While energy costs fell in this lagging report, more recent oil spikes are expected to reverse this trend in upcoming releases.
• UK Retail Sales (Feb): Fell 0.4% as consumer confidence hit a one-year low, reflecting the immediate impact of the energy crisis on household spending.

Macro Calendar Highlights

• U.S. Non-Farm Payrolls (March)
• The April 6 "War-Ending Deal" Deadline
• Eurozone Unemployment Rate
• OPEC+ JMMC Meeting
• China Caixin Services PMI