Weekly Market Recap

As expected, the Monetary Policy Committee of the Bank of England left its key interest rate on hold at 3.75% at its latest meeting but warned that a prolonged energy shock would likely drive up inflation and could pave the way for higher interest rates. Separately, the central bank’s financial services regulatory body, the Prudential Regulation Authority, unveiled proposals to enhance liquidity and protect banks during crises.A report by UK manufacturing industry body Make UK indicated that declining domestic orders and rising costs are weighing on business confidence in the country.

The Federal Reserve concluded its March monetary policy meeting on Wednesday and announced that it would leave the target range for its federal funds rate unchanged at 3.50% to 3.75%, the second consecutive meeting with no change. Policymakers voted 11–1 on the decision, with one Fed official voting instead for a rate cut. Updated forecasts from central bank officials showed a median estimate of one more rate cut for the year, unchanged from their prior projection, while forecasts for both inflation and economic growth during the year were revised higher.

In his post-meeting press conference, Fed Chair Jerome Powell pointed to heightened economic uncertainty stemming in part from geopolitical developments in the Middle East, particularly related to the potential for an energy shock that “can cause trouble for inflation expectations.”

Adding to potential inflation worries, the Bureau of Labor Statistics reported on Wednesday that producer price index growth accelerated in February, rising 0.7%, up from 0.5% in January and the highest reading since July 2025. On an annual basis, the index rose 3.4%, an increase from 2.9% in the prior month. Both readings were ahead of consensus estimates.

The week’s economic calendar also included several reports on the housing market, starting with the National Association of Home Builders’ (NAHB) Housing Market Index. On Monday, the NAHB reported that the index—which gauges overall builder sentiment toward housing market conditions—rose one point to 38 in March, with modest increases seen in all three of the index’s components. However, 37% of builders reported cutting prices during the month, and the NAHB noted that affordability remains a top concern.

February pending home sales data also indicated a modest improvement from the prior month, rising 1.8% versus January’s 0.8% decline, according to the National Association of Realtors. Later in the week, however, the Census Bureau reported that new home sales in January fell to the lowest level since 2022, coming in at a seasonally adjusted annual rate of 587,000 compared with December’s revised reading of 712,000.

Against a backdrop of sharply higher energy prices, the European Central Bank (ECB) kept interest rates on hold at its policy meeting on Thursday. However, ECB President Christine Lagarde warned that higher prices for oil and gas will have a “material impact” on near-term inflation and noted that the region’s central bank will be keeping a close watch on “incoming information” to calibrate its policy response. The ECB raised its inflation forecast for 2026 to 2.6%, up from 1.9% in December. Annual inflation in the eurozone rose to 1.9% in February. The Swiss National Bank and Riksbank, the Swedish central bank, also left their policy rates on hold.

Preliminary estimates show that the euro area’s trade deficit in goods increased to EUR 1.9 billion in January 2026, according to data from Eurostat, the official European Union statistics agency. This compares with a deficit of EUR 1.4 billion 12 months ago and a surplus of EUR 11.2 billion in December 2025. The change was due largely to lower exports in the machinery, vehicles, and chemicals sectors.

Producer prices in Germany fell 3.3% year-on-year (YoY) in February, a larger decline than observers anticipated. This reflected significant drops in gas and electricity costs.

China’s January and February activity data surprised modestly to the upside, suggesting early-year stabilisation while tempering large-scale stimulus expectations. Industrial production rose 6.3% YoY, while retail sales increased 2.8%, both exceeding market expectations. Fixed asset investment grew 1.8%, marking a tentative recovery from 2025’s decline, driven by infrastructure spending, which partially offset property investment weakness. China publishes combined data for January and February to smooth Chinese New Year holiday distortions.

China’s property sector showed signs of stabilisation in February. New home prices across 70 cities declined 0.28%, moderating from a 0.37% drop in January. On a yearly basis, prices were down 3.2%, slightly worse than in January. Resale home values decreased 0.43%, the smallest decline in 10 months. Authorities have introduced incremental support measures, including easing homebuying restrictions for non-residents in major cities such as Shanghai and Beijing.

China has pushed back against the US’s new Section 301 investigations into the manufacturing policies of major trading partners, including China, focusing on excess capacity in strategic industries. US Trade Representative Jamieson Greer said that the probe could trigger tariffs on imports from China, India, Japan, South Korea, Mexico, and the European Union as early as this summer. Beijing has called for dialogue while signalling it will defend its interests. The probe follows a Supreme Court ruling that last year’s Trump-era tariffs were unlawful.

JapanMarkets remained under pressure amid limited signs of de-escalation in the Middle East conflict and continued volatility in oil prices. Investor concerns persisted despite Japan’s government releasing oil from its strategic reserves to help stabilise domestic supply and limit price increases.

With geopolitical tensions clouding the outlook, the Bank of Japan (BoJ) left its policy interest rate unchanged at 0.75%, as widely expected. The decision was not unanimous, with one policymaker advocating for a rate increase. In its Statement on Monetary Policy, the BoJ emphasised the need to closely monitor developments in the Middle East, global financial and capital market volatility, and the sharp rise in oil prices. While the central bank expects inflation to temporarily moderate below its 2% target, higher energy costs are likely to push inflation higher again. If its outlook for economic activity and prices is realised, the central bank will continue raising its policy rate.

Citing risks to the outlook, BoJ Governor Kazuo Ueda warned that higher oil prices could weigh on economic growth by worsening Japan’s terms of trade and pushing up inflation. Ueda added that the BoJ will closely assess this year’s spring wage negotiations and firms’ pricing behaviour to determine whether wage growth and price increases can be sustained together.

In fixed income markets, the yield on the 10-year Japanese government bond rose to 2.27% from 2.25% at the end of the previous week, reflecting continued expectations of gradual policy normalisation and broader upward pressure on global yields amid rising energy prices. In currency markets, the yen strengthened modestly to JPY 159.2 against the US dollar, from JPY 159.7 the previous week. However, it remained weak by historical standards, continuing to support exporters while also amplifying imported inflation pressures.

In economic data developments, Japan’s customs exports rose 4.2% YoY in February, above the consensus estimate of 1.9%, marking a slowdown in momentum but extending a six-month run of growth. Shipments to broader Asia were modestly positive, and exports to the European Union saw double-digit gains, while exports to the US and China declined, the latter partly reflecting the timing of the Chinese New Year holiday. Imports rose 10.2%, below the consensus of 11.3%, rebounding from a contraction in the previous month, as the trade balance swung to a modest surplus against expectations of a deficit.

The Reserve Bank of Australia (RBA) voted 5-4 to raise the cash rate by 25bps to 4.10% on Tuesday, in line with market consensus. The RBA leaned toward a somewhat hawkish view that risks to inflation have tilted further to the upside, including inflation expectations. Australian employment increased by 49,000 in February, stronger than market expectations. The unemployment rate, however, rose from 4.1% to 4.3% due to an increase in the labour force participation rate.

The Bank of Canada decided to hold its key interest rate at 2.25%, amid heightened uncertainty stemming from the war in Iran and surging oil prices. The central bank acknowledged that the oil price shock—with crude prices roughly 50% higher since the war began—brings downside risks to growth and upside risks to inflation, though it stated it was too early to assess the full economic impact. Following the rate decision, market expectations shifted dramatically, with traders now betting on 75bps of rate hikes in 2026, starting in July, a major reversal from earlier dovish pricing.

Last week, the MSCI All Country World Index (MSCI ACWI) lost -1.8% (-3.0% YTD).

The S&P 500 Index finished lower -1.9% (-4.7% YTD) in a volatile week shaped by geopolitical tensions and resulting volatility in oil prices, persistent inflation concerns, and a somewhat hawkish interpretation of the Federal Reserve’s latest policy signals.

Within the S&P 500 Index, energy was the best-performing sector by a wide margin as oil prices rose amid ongoing uncertainty about Middle East supply risks. US Treasury yields also mostly moved higher amid the heightened uncertainty, with the yield on the benchmark 10-year US Treasury note rising to 4.38%. The Russell 1000 Growth Index returned -2.4% (-9.5% YTD), the Russell Value Index -1.3% (0.8% YTD) and the Russell 2000 Index -1.7% (-1.5% YTD). The technology-heavy Nasdaq Composite fell -2.1% (-6.7% YTD).

In Europe, the MSCI Europe ex-UK Index dropped -3.9% (-4.1% YTD). Investors’ focus was largely on the intensification of the conflict in the Middle East amid attacks on oil tankers in the strategic Strait of Hormuz and damage to natural gas terminals in Qatar. Major stock indices retreated. Germany’s DAX Index tumbled -4.6% (-8.6% YTD), France’s CAC 40 Index lost -3.1% (-5.9% YTD), and Italy’s FTSE MIB Index declined -3.3% (-4.4% YTD). Switzerland’s SMI fell -4.0% (-6.1% YTD). The euro strengthened against the US dollar, closing the week at USD 1.16 for EUR, up from 1.14.

The FTSE 100 Index in the UK dropped -3.2% (0.7% YTD), while the FTSE 250 Index was down -3.2% (-4.6% YTD). The British pound appreciated against the US dollar, closing the week at USD 1.33 for GBP, up from 1.32.

In Japan, the TOPIX Index shed -0.5% (5.9% YTD), and the TOPIX Small Index slipped -0.7% (6.8% YTD) in a holiday-shortened week (Japan’s stock markets were closed on Friday).

In Australia, the S&P/ASX 200 Index fell 2.2% (-1.9% YTD) as the war in Iran escalated on Wednesday. The bear flattening trend continued as the short end of the curve rose more than the long end. The Australian dollar strengthened against the US dollar by 1.5%.

In Canada, the S&P/TSX Composite decreased by -3.7% (-0.8% YTD).

The MSCI Emerging Markets Index pared -0.3% (4.5% YTD). The Taiwanese and South Korean markets contributed positively, while those of China and Brazil contributed negatively.

Chinese equity markets fell last week as rising energy prices tied to Middle East tensions added to persistent concerns over weak domestic demand and limited policy support. The onshore CSI 300 Index, the main onshore benchmark, decreased by -2.2% (-1.2% YTD), while the Shanghai Composite Index fell by -3.4% (-0.2% YTD). Hong Kong's benchmark Hang Seng Index proved more resilient, edging down -0.7% (-1.1% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, dropped -2.8% (-6.0% YTD).

In Brazil, the Central Bank of Brazil (BCB) delivered a smaller-than-expected start to its easing cycle this week, cutting its benchmark Selic rate by 25bps to 14.75%. While a rate cut had been widely anticipated, some investors had expected a larger 50bps move before the recent rise in global oil prices. The decision suggests a more cautious stance as policymakers weigh conflicting forces—slowing domestic activity against renewed inflation pressures.

The BCB acknowledged that high interest rates are beginning to cool the economy but emphasised that inflation remains a concern. Updated forecasts show inflation tracking higher than previously expected, driven in part by stronger energy prices and a still-tight labour market. Policymakers also noted that inflation expectations remain somewhat “unanchored,” meaning businesses and consumers are not yet fully confident that inflation will settle back toward target levels. At the same time, global uncertainty—particularly around geopolitical developments and commodity prices—has created a wide range of possible outcomes for growth and inflation.

In the Gulf countries, market attention this week centred on the escalating impact of the Iran conflict and the disruption of shipping through the Strait of Hormuz, a critical artery for global energy and commodity flows. While geopolitical tensions had already been elevated, the continued halt in transit through the strait marked a more acute phase of the crisis, raising concerns about export volumes, fiscal revenues, and broader economic stability across the region. Bloomberg noted that, if prolonged, the disruption could pose the most significant challenge to Gulf economies since the 1990s.

Markets responded by differentiating more clearly between stronger and weaker Gulf issuers. Core economies such as Saudi Arabia, the United Arab Emirates, and Qatar appeared relatively resilient, supported by substantial financial buffers and, in some cases, alternative export routes that reduce reliance on the Strait of Hormuz. In contrast, more vulnerable credits—particularly Bahrain—came under greater scrutiny. With limited fiscal flexibility and no meaningful workaround for disrupted export flows, T. Rowe Price Sovereign Analyst Razan Nasser noted that Bahrain had seen mounting pressure on its currency and credit profile, which reinforced expectations that external support from regional peers may ultimately be required if the disruption persists.

Commodity markets reflected the immediacy of the shock. Iranian strikes on one of the world’s largest liquefied natural gas (LNG) hubs in Qatar reduced the country’s export capacity by roughly 17%, with repairs expected to take three to five years, according to QatarEnergy. Because Qatar is a major global LNG supplier, the disruption—combined with earlier production halts and force majeure declarations—has tightened gas markets and driven sharp price increases, particularly in Europe and Asia, while raising concerns about prolonged supply shortages. Some investors interpreted the recent developments not as a systemic crisis for the Gulf as a whole, but as a scenario where risks are unevenly distributed. As a result, market sentiment has remained highly sensitive to incoming headlines, with the duration of the disruption—and any signs of de-escalation—seen by some as key to determining whether current pressures remain contained or evolve into a more sustained economic challenge.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.4% (-0.5% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.6% (-0.9% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index -0.8% (-1.5% YTD).

Over the week, the 10-year Treasury yield rose by 10bps to 4.38% from 4.28% (up 21bps YTD). The 2-year Treasury yield increased by 18bps, ending the week at 3.90% from 3.72% (up 43bps YTD).

Over the week, the 10-year German Bund yield increased by 6bps, ending at 3.04% from 2.98% (up 19bps YTD). The 10-year UK gilt yield rose by 17bps, ending the week at 4.99% from 4.82% (up 52bps YTD).