Weekly Market Recap

The OECD’s 2026 growth forecast for the UK was lowered from 1.2% to 0.7%.

The UK’s annual rate of inflation remained unchanged at 3% in February, according to the Office for National Statistics. However, observers noted that the data do not include the effects of the war in Iran, which began on 28 February and has led to sharply higher oil and gas prices.

Against a backdrop of higher energy prices, the European Central Bank (ECB) indicated that it stands ready to make changes to its policy “at any meeting” if required. However, ECB President Christine Lagarde noted that it is too early to decide and that policymakers will have to assess the “nature, size, and persistence” of inflationary pressures stemming from the war in Iran. She also cautioned that markets are being “overly optimistic” about the economic impact of the conflict.

The March reading of the German Ifo Business Climate Index fell to 86.4, the weakest level since February 2025. This was better than expected but markedly weaker than the previous month. The future expectations component of the index was particularly soft, reflecting concerns about the anticipated effect of the war on economic growth in Germany. More encouragingly, the country’s S&P Global Manufacturing PMI rose to 51.7 in March, up from 50.9 in February.

Business activity growth softened in March, according to the S&P Global Eurozone Composite PMI, which fell to 50.5 from the February reading of 51.9. Within this, new orders contracted for the first time since last summer, and supply chains showed signs of severe disruptions.

The Organisation for Economic Cooperation and Development (OECD) lowered its European growth outlook for 2026, citing the conflict in the Middle East, which it said would raise costs and lower demand. The organisation is now forecasting eurozone growth of 0.8% for the year, down from its previous estimate of 1.2%.

China’s government intervened to limit increases in domestic refined fuel prices, aiming to soften the impact of higher energy costs linked to the ongoing conflict in the Middle East. The National Development and Reform Commission announced that prices for domestic gasoline and diesel would rise by approximately 10%, about half of the increase expected under the government’s pricing mechanism. China is a net importer of oil, and about 45% of its shipments travel through the Strait of Hormuz.

China’s Ministry of Commerce said on Friday that it launched investigations into the US supply chain and renewable energy practices, mirroring Washington’s use of Section 301 tools and marking a further escalation in bilateral trade tensions. The move follows renewed US efforts to revive tariffs after partial legal setbacks and comes ahead of a planned Xi-Trump summit in mid-May.

The six-month probes, with possible extension, target a wide range of US measures, including import restrictions on Chinese goods, export controls on advanced technology, and limits on bilateral investment. Beijing signalled that some actions may breach World Trade Organisation rules and existing agreements.

Earlier in the week, Beijing adopted a more conciliatory trade stance, acknowledging concerns from other countries about its large trade surplus and signalling a push toward more balanced trade by increasing imports of higher-quality foreign goods. Speaking at the annual China Development Forum, Premier Li Qiang said that the government would open more business opportunities for foreign firms, including by widening access to the services sector and boosting imports of medical products, digital technologies, and low-carbon services.

Profits of China’s major industrial firms jumped 15.2% in the first two months of 2026 from a year earlier, before the conflict in the Middle East started. For the whole of 2025, industrial profits grew 0.6% YoY. State-owned enterprise profits rose 5.3% in January and February, while those of private firms surged 37.2%, highlighting an uneven earnings recovery.

Elevated oil prices and the conflict in the Middle East weighed on investor sentiment, as Japan relies heavily on imported energy, raising concerns about higher costs for businesses, slower economic growth, and a potential squeeze on household spending. Prime Minister Sanae Takaichi signalled plans to strengthen the country’s response to the conflict's impact, including a comprehensive review of oil supplies and related products, as concerns grow about potential shortages and wider economic effects. The government began releasing state-held oil reserves during the week.

By the end of the week, the yen was hovering around JPY 160 against the US dollar, a level where Japanese authorities had intervened multiple times in 2024 to prop up the currency. In a fresh bout of verbal intervention, Finance Minister Satsuki Katayama said that authorities would respond firmly, including by taking bold steps, and pointed to speculative foreign-exchange moves, particularly those linked to developments in oil markets. The proximity to past intervention levels has kept currency volatility and policy risk in focus for investors.

Within fixed income, the yield on the 10-year Japanese government bond rose to 2.38%, from 2.27% at the end of the previous week, tracking higher global yields and reflecting firmer inflation expectations amid elevated oil prices and a weaker yen. The move also points to expectations of gradual policy normalisation by the Bank of Japan (BoJ), although officials are likely to remain cautious and focused on underlying, wage-driven inflation rather than reacting to short-term, commodity-driven price pressures. At its March meeting, the BoJ left rates unchanged but kept the door open for a possible April rate hike.

On the economic data front, Japan’s nationwide core consumer price index (CPI) rose 1.6% year over year (YoY) in February, versus the consensus forecast of 1.7% and down from 2.0% in January. The slowdown was largely attributable to government energy relief measures, including subsidies for electricity and gas. The BoJ has indicated that inflation may temporarily soften due to these measures, although upward pressure on prices is then likely to persist, reflecting higher oil prices. Policymakers continue to emphasise that a sustained rise in wages will be key to supporting stable inflation.

Australia's headline CPI was unchanged in February, with YoY inflation easing 0.1% to 3.7%. The trimmed mean measure increased 0.2% MoM, with the YoY figure little changed at 3.3%, slightly below the market consensus of 3.4%.

Canada's financial markets have been significantly affected by the escalating conflict in the Middle East, particularly through its impact on energy prices and expectations for monetary policy. Within the S&P/TSX Composite Index, gold and silver producers were among the worst performers as traders anticipated that central banks might not rush to cut interest rates amid inflationary pressures stemming from the war in Iran. Markets raised bets on Bank of Canada interest rate hikes, with traders pricing in 75bps of increases in 2026, starting with a 25bps hike in July, a major shift from earlier expectations. The Canadian dollar experienced volatility throughout the week, remaining under pressure from a stronger US dollar despite support from elevated crude prices above USD 100 per barrel. The OECD trimmed Canada's GDP growth forecast while raising inflation projections for 2026 amid the Middle East conflict.

Last week, the MSCI All Country World Index (MSCI ACWI) lost -1.5% (-4.4% YTD).

The S&P 500 Index finished lower -2.1% (-6.7% YTD). It was a volatile, headline-driven week, as a relatively light economic calendar left investors largely focused on shifting geopolitical developments, oil price volatility, and continued pressure on large-cap technology stocks. Equities rallied to start the week amid optimism that the conflict in the Middle East could de-escalate. However, sentiment deteriorated through the end of the week, as conflicting headlines appeared to undermine confidence in a near-term resolution.

Large-cap value stocks outperformed their growth counterparts for the third consecutive week. The Russell 1000 Growth Index returned -3.4% (-12.7% YTD), the Russell Value Index -0.5% (0.3% YTD) and the Russell 2000 Index 0.5% (-1.0% YTD), snapping a four-week losing streak. The technology-heavy Nasdaq Composite fell -3.2% (-9.7% YTD), finishing lower for the fifth week in a row.

In Europe, the MSCI Europe ex-UK Index added 0.4% (-3.7% YTD). Sentiment was largely driven by uncertainty about how and when the conflict in the Middle East is likely to be resolved, as well as its potential impact on economic growth. Major stock indices were mixed. Germany’s DAX Index slipped -0.4% (-8.9% YTD), France’s CAC 40 Index put on 0.5% (-5.5% YTD), and Italy’s FTSE MIB Index rose 1.3% (-3.1% YTD). Switzerland’s SMI rallied 2.3% (-4.0% YTD). The euro weakened against the US dollar, closing the week at USD 1.15 for EUR, down from 1.16.

The FTSE 100 Index in the UK gained 0.6% (1.3% YTD), while the FTSE 250 Index was down -1.7% (-6.2% YTD). The British pound was little changed against the US dollar, closing the week at USD 1.33 for GBP.

Japan’s stock market returns were positive over the week. The TOPIX Index added 1.1% (7.1% YTD), and the TOPIX Small Index gained 1.2% (8.2% YTD).

In Australia, the S&P/ASX 200 Index rose 1.1% (-0.9% YTD) on the back of a temporary US-Iran ceasefire and a lower-than-expected February inflation print. Australian government bond yields continued to move higher, with the curve steepening modestly. The Australian dollar weakened against the US dollar by 1.7%.

In Canada, the S&P/TSX Composite increased by 2.1% (1.3% YTD).

The MSCI Emerging Markets Index lost -1.7% (2.7% YTD). The Brazilian market contributed positively, while those of China, India, Taiwan and South Korea contributed negatively.

Chinese equity markets fell during the week, driven more by oil price concerns tied to the Middle East conflict than domestic macro surprises, as investors reassessed earnings pressure across transportation, industrial, consumer, and other energy-sensitive sectors. The onshore CSI 300 Index, the main onshore benchmark, decreased by -1.4% (-2.6% YTD), while the Shanghai Composite Index declined by -1.1% (-1.2% YTD). Hong Kong's benchmark Hang Seng Index lost -1.3% (-2.3% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, was down -1.2% (-7.2% YTD).

Market attention across Asia centred on the spillover from rising global energy prices as the Iran-linked oil shock forced governments to respond quickly to mounting inflation risks. The impact was uneven, with markets differentiating between energy importers and exporters.

In the Philippines, authorities declared an energy emergency and suspended parts of the electricity market to contain price spikes amid fuel shortages. With heavy reliance on spot energy imports and limited subsidies, inflation risks rose sharply. The central bank held rates steady but signalled tolerance for higher inflation, reinforcing concerns about external balances. Thailand and Malaysia raised retail fuel prices, surprising investors. While this is expected to lift headline inflation, markets appeared to view the moves as fiscally responsible. Malaysia’s exporter status helped cushion sentiment, though expectations for a potential rate hike increased. In Thailand, the move was seen as normalisation, with limited immediate policy implications.

Elsewhere in Asia, South Korea shifted into “crisis mode,” announcing a bond buyback program to stabilise markets amid rising yields and tightening expectations. Government bond yields eased somewhat following the intervention, although the currency remained under pressure due to energy import dependence. India took a more targeted approach, cutting fuel taxes to limit inflation pass-through but raising longer-term fiscal questions. Indonesia combined fiscal discipline with liquidity support to cap bond yields as its local credit market came under strain, reflecting inflation risks, capital outflows, and growing scrutiny of sovereign creditworthiness.

In Mexico, the central bank (Banxico) surprised markets by cutting interest rates by 25bps to 6.75%, contrary to expectations of a pause. The decision was narrowly split, with two policymakers dissenting—highlighting growing disagreement about the appropriate policy path. The move came despite inflation surprising to the upside ahead of the meeting. While headline inflation has picked up, Banxico emphasised that core inflation has not accelerated to the same degree. Still, both measures remain above the bank’s 2%–4% target range, and policymakers acknowledged that inflation risks are skewed upward.

Banxico also revised its near-term inflation forecasts upward, though it continues to expect inflation to return to target by mid-2027. At the same time, the central bank cited weak economic growth as a key concern and suggested that monetary policy remains sufficiently restrictive to absorb external shocks. Looking ahead, policymakers signalled that they will assess whether “an additional cut” is warranted, suggesting the easing cycle may be nearing its end, with rates potentially settling around 6.5%.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.2% (-0.7% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.4% (-1.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -0.4% (-1.9% YTD).

US Treasuries finished close to unchanged despite some midweek yield volatility. Markets appear to be pricing in a Federal Reserve rate hike, as the conflict in the Middle East and the subsequent rise in oil prices have increased inflation risks. Over the week, the 10-year Treasury yield rose by 5bps to 4.43% from 4.38% (up 26bps YTD). The 2-year Treasury yield increased by 1bp, ending the week at 3.91% from 3.90% (up 44bps YTD).

Meanwhile, US high-yield bonds were little changed, advancing early in the week amid encouraging geopolitical headlines before pulling back as broader optimism faded. Investors’ focus on potential corporate mergers and acquisitions contributed to elevated trading activity in the market.

Over the week, the 10-year German Bund yield increased by 5bps, ending at 3.09% from 3.04% (up 24bps YTD). The 10-year UK gilt yield declined by -2bps, ending the week at 4.97% from 4.99% (up 50bps YTD).