Global Markets Weekly Update

U.S.

U.S. equity indexes finished lower 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. The Dow Jones Industrial Average fared worst, declining 2.11%, followed by the Nasdaq Composite, which shed 2.07%. The S&P MidCap 400 Index held up best but still fell 1.34%.

Within the S&P 500 Index, energy was the best-performing sector by a wide margin as oil prices moved higher amid ongoing uncertainty surrounding Middle East supply risks. U.S. Treasury yields also mostly moved higher amid the heightened uncertainty, with the yield on the benchmark 10-year U.S. Treasury note rising to around 4.38% as of Friday afternoon.

Fed leaves rates unchanged

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. 

Homebuilder sentiment, pending sales rise; new home sales slide to lowest since 2022

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.

Europe

The pan-European STOXX Europe 600 Index declined by 3.79% in local currency terms. 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. Among major stock indexes, Germany’s DAX closed down 4.55%, Italy’s FTSE MIB fell 3.33%, and France’s CAC 40 Index retreated 3.11%. The UK’s FTSE 100 Index lost 3.34%.

ECB warns of inflation risk as energy costs soar

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. 

Eurozone trade gap widens

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 compared 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 and vehicles and chemicals sectors.

German producer prices decline 

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

Bank of England keeps interest rates on hold

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 designed to enhance liquidity and protect banks during times of crisis.

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. 

Japan

The Nikkei 225 Index declined 0.83% and the broader TOPIX Index was down 0.54% in a holiday-shortened week (Japan’s stock markets were closed on Friday). Markets 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 stabilize 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 emphasized 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 realized, 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, while also pushing up inflation. Ueda added that the BoJ will closely assess this year’s spring wage negotiations and firms’ pricing behavior to determine whether wage growth and price increases can be sustained together. 

Yen slightly strengthens but remains weak by historical standards

In fixed income markets, the yield on the 10-year Japanese government bond rose to 2.26% from 2.22% at the end of the previous week, reflecting continued expectations of gradual policy normalization and broader upward pressure on global yields amid rising energy prices. In currency markets, the yen strengthened modestly to around JPY 159.2 against the U.S. 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% year over year 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 U.S. and China declined, the latter partly reflecting the timing of the Lunar New Year holiday. Imports rose 10.2%, below 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. 

China

Chinese equity markets fell this week as rising energy prices tied to Middle East tensions added to persistent concerns over weak domestic demand and limited policy support. The CSI 300 Index dropped 2.19% while the Shanghai Composite Index fell 3.38% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index proved more resilient, edging down 0.74%.

Activity data modestly beat expectations

China’s January and February activity data surprised modestly to the upside, suggesting early-year stabilization while tempering large-scale stimulus expectations. Industrial production rose 6.3% year over year, 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 Lunar New Year holiday distortions.

Property market shows tentative stabilization

China’s property sector showed signs of stabilization 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 January. Resale home values decreased 0.43%, the smallest decline in 10 months. Authorities have introduced incremental support measures, including easing homebuying restrictions for nonresidents in major cities such as Shanghai and Beijing. 

Trade tensions resurface with potential U.S. tariff expansion

China has pushed back against the U.S.’s new Section 301 investigations into the manufacturing policies of major trading partners, including China, with a focus on excess capacity in strategic industries. U.S. 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 signaling it will defend its interests. The probe follows a Supreme Court ruling that last year’s Trump-era tariffs were unlawful. 

Other key markets

Brazil 

Central bank begins easing cautiously amid rising uncertainty

The Central Bank of Brazil (BCB) delivered a smaller-than-expected start to its easing cycle this week, cutting its benchmark Selic rate by 25 basis points (0.25 percentage points) to 14.75%. While a rate cut had been widely anticipated, some investors expected a larger 50-basis-point move prior to 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 emphasized 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 labor 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.

Gulf Countries

Geopolitical risk continued to rise as Hormuz disruption deepened

Market attention across the Gulf region this week centered 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 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.