Global markets weekly update

U.S. stock indexes recorded solid gains for the second week in a row as signs of de-escalating conflict in the Middle East and a subsequent drop in oil prices boosted investor sentiment. Enthusiasm around artificial intelligence-linked stocks also served as a tailwind for parts of the market, with several large-cap technology and semiconductor stocks advancing on optimism around compute demand, new model launches, and continued infrastructure spending.

Major indexes all advanced over 3% for the week, led by the Nasdaq Composite’s 4.68% gain. Within the S&P 500 Index, energy was the only sector to post negative returns, while the consumer discretionary, communication services, and information technology segments led gains. U.S. Treasuries also generated positive returns.

Markets began the week with a cautious tone as investors monitored escalating rhetoric between the U.S. and Iran, including threats tied to energy infrastructure and shipping through the Strait of Hormuz. However, sentiment improved markedly on reports of a two-week ceasefire framework and continued negotiations, helping fuel a broad risk-on rally. Oil prices, which had moved sharply higher in recent weeks, plunged on Wednesday in their steepest daily decline since 2020. Additional reports suggesting talks involving Israel and Lebanon also appeared to support equities late in the week, although overall uncertainty remained elevated heading into the weekend.

In economic news, the Bureau of Labor Statistics reported that its consumer price index (CPI) rose 3.3% year over year in March, accelerating from February’s 2.4% increase and hitting the fastest pace since May 2024. The reading was largely in line with consensus estimates. Nearly three-quarters of the overall increase was due to a sharp rise in gasoline prices. Core CPI—which excludes costs for food and energy—rose 2.6%, a more modest uptick from February’s reading of 2.5%. 

Meanwhile, the Bureau of Economic Analysis (BEA) reported that its core personal consumption expenditures index—the Fed’s preferred inflation gauge—rose 3% year over year in February, edging lower from 3.1% in January, although the data largely do not yet reflect potential impacts from the conflict in Iran. Personal income decreased 0.1% during the month, down from a 0.4% increase in January. 

The BEA also released its third estimate of U.S. real gross domestic product (GDP) growth for the fourth quarter of 2025, revising its previous estimate of annualized growth down to 0.5% from 0.7%, primarily reflecting lower levels of investment.

Elsewhere, the Institute for Supply Management reported that its Services Purchasing Managers’ Index (PMI) slipped 2.1 points to 54 in March, below estimates for around 55 but remaining in expansion territory for the 21st consecutive month (readings above 50 indicate expansion). The headline index was supported by continuing strength in business activity and new orders, while higher oil and fuel costs drove the prices index to the highest level since October 2022.

The University of Michigan reported that a preliminary estimate of its Index of Consumer Sentiment came in at 47.6 for April, a 5.7-point drop from the prior month. All components of the index declined, and worsening sentiment was seen across all demographic groups, with consumers noting “a substantial increase in concerns over high prices and weaker asset values.” Expectations for inflation in the year ahead jumped to 4.8%, a full percentage point increase from March.

The pan-European STOXX Europe 600 Index ended the week up 3.05% in local currency terms. Markets rallied on Tuesday after the U.S. and Iran agreed to a two-week ceasefire. Among major stock indexes, Germany’s DAX closed up 2.74%, Italy’s FTSE MIB rose 4.35%, and France’s CAC 40 Index climbed 3.73%. The UK’s FTSE 100 Index gained 1.57%. The region’s stock markets were closed for Easter Monday.

European Union (EU) Economy Commissioner Valdis Dombrovskis announced that the EU is preparing to cut its official growth forecast for 2026 in May, citing the risk of a “stagflationary shock” ushered in by low growth and rising inflation. He noted that the war could cut 0.4% off EU economic growth this year even if the conflict is short-lived. Dombrovskis warned that “more substantial” disturbances could shave 0.6% off the region’s GDP growth rate.

Factory orders rose 0.9% month over month in February, a smaller gain than the 2% increase that had been expected. Gains in automotive, textiles, and metal production and processing orders helped drive the rise. Growth in foreign orders more than offset declines in domestic orders.

Services activity contracted again in France in March 2026, with the S&P Global France Services PMI falling to 48.8, below the 49.6 level registered in February. New business volumes were weak, caused by slower client spending ahead of local elections and uncertainty around the Middle East conflict. In Italy, the services sector unexpectedly entered contractionary territory in March on soft demand and rising international uncertainty.

UK house prices rose by 0.8% year over year in March 2026, according to data from the widely watched Halifax House Price Index. This was less than both the expected pace of 1.5% and the 1.2% growth registered in February.

Japan’s stock markets rebounded strongly during the week, with the Nikkei 225 Index gaining 7.15% and the broader TOPIX Index up 2.60%. With the worst-case scenario avoided as the U.S. and Iran agreed to a conditional two-week ceasefire, markets staged a relief rally, driven by technology stocks and other exporters that had been hardest hit by the geopolitical turmoil. While oil and gas prices plummeted on the ceasefire deal, risks remained heightened amid continued concerns about energy supply disruptions, and the mood was one of caution ahead of upcoming negotiations.

Prime Minister Sanae Takaichi announced that an additional release from Japan’s state oil reserves would begin next month as part of ongoing efforts to ensure stable crude supply. This follows earlier moves to draw on both national and private-sector stockpiles since March, aimed at mitigating oil-shock-driven price spikes and limiting the domestic impact of higher energy costs.

Accelerating petroleum prices were reflected in the latest data on producer prices, as the conflict in the Middle East pushed up input costs. Japan’s corporate goods price index (CGPI), a measure of wholesale inflation, rose 2.6% year over year in March, ahead of the consensus estimate of 2.3% and following February’s revised 2.1%. Petroleum was the main driver to the headline CGPI, with hydrocarbon chemicals the second-biggest contributor. Wages adjusted for inflation rose by 1.9% from a year earlier in February, the fastest since 2021, partially driven by a temporary moderation of inflation due to government utility subsidies. The consumer confidence index was 33.3 in March, below a consensus forecast for 38.3 and following February’s 39.7, showing a sharp deterioration in household sentiment amid the surge in fuel prices.

Within fixed income, the yield on the 10-year Japanese government bond (JGB) rose to 2.42%, from 2.39% at the end of the previous week. The JGB yield hovered near its highest level since 1997, having surged since the start of the Middle East war on expectations that higher energy costs would push up inflation in Japan, in turn increasing the likelihood that the Bank of Japan (BoJ) raises interest rates at its April meeting.

In foreign exchange markets, the yen strengthened midweek on the ceasefire news before stabilizing around JPY 159 against the U.S. dollar, broadly unchanged on the week. The currency’s relative weakness continues to provide support to exporters but remains sensitive to shifts in rate expectations and global risk sentiment. Market direction is likely to depend on developments in Middle East negotiations as well as incoming domestic data, particularly on wages and inflation, for further signals on the BoJ’s policy path.

Chinese stock markets ended the holiday-shortened week higher amid hopes of easing geopolitical tensions following a U.S.-Iran agreement on a conditional two-week ceasefire and expectations for continued negotiations. Stronger factory gate prices also lifted sentiment. The onshore benchmark CSI 300 Index rose 4.41%, and the Shanghai Composite Index gained 2.74% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index advanced 3.09%. China’s mainland markets were closed on Monday for the Qingming Festival. Hong Kong markets were shut Monday and Tuesday for a combination of Easter and local public holidays.

China’s factory gate prices rose for the first time in more than three years in March, suggesting the U.S.-Israel conflict with Iran is starting to feed cost pressures into China’s economy. The producer price index (PPI) increased 0.5% from a year earlier, exceeding expectations after 41 months of declines that were driven partly by businesses cutting prices amid intense competition. The March PPI rebound was driven primarily by higher commodity and energy prices rather than a broad-based pickup in demand. In contrast, consumer prices rose 1% in March from the year-ago period, down from the 1.3% rise in February amid a seasonal decline in consumer demand after the Lunar New Year holidays.

China’s securities regulator implemented new rules this week tightening oversight of short-term trading by major shareholders and company executives. The China Securities Regulatory Commission said that the rules apply to shareholders with a stake of 5% or more in a single-listed company, including foreign investors, executives of publicly traded companies, and their spouses and children. The rules prohibit buying and selling the same stock within a six-month window and expand scrutiny across equities, depositary receipts, and convertible bonds, with clearer definitions and enforcement mechanisms.

Chinese leader Xi Jinping welcomed the leader of Taiwan’s main opposition party for a rare meeting in Beijing on Friday and said that the unification with the mainland is a “historical inevitability.” Xi invited Cheng Li-wun, the chair of Taiwan’s opposition Kuomintang (KMT) party, to China during the week, with the visit coming as Beijing has increased military exercises around Taiwan following the election of President Lai Ching-te from the ruling Democratic Progressive Party. While exchanges between KMT’s leadership and Chinese officials are not rare, no sitting KMT leader has met Xi since 2016. The visit also comes ahead of President Donald Trump’s planned visit to Beijing in mid-May.

After a sharp escalation, markets shifted direction as news of a ceasefire and renewed diplomatic talks with Iran helped ease immediate geopolitical fears. At the same time, reports that Israel and Lebanon are expected to hold talks further supported the view that broader regional tensions may be stabilizing. While risks have not fully disappeared—particularly around energy infrastructure—investors seemed to interpret these developments as reducing the likelihood of a wider conflict. As a result, the “geopolitical risk premium” that had briefly pushed up oil prices and pressured risk assets began to unwind.

Markets responded quickly to signs of de-escalation, with sentiment shifting decisively toward a “risk-on” environment—meaning investors were more willing to move back into stocks and other higher-risk assets.

Emerging markets (EM) equities, which had been under the most pressure during the earlier escalation, rebounded. As geopolitical concerns eased, these markets saw a strong recovery, with EM equities on track for their best weekly gains in several years. The rebound was supported by renewed investor inflows as capital rotated back into higher-risk regions. Countries like South Africa stood out, benefiting from what market participants have described as a “de-escalation trade.”

In energy markets, oil prices—which had risen sharply on fears of supply disruptions—pulled back modestly as the ceasefire reduced immediate concerns around key transit routes such as the Strait of Hormuz. However, prices remained somewhat elevated, reflecting lingering uncertainty and isolated incidents affecting regional infrastructure. This suggests that while tensions have eased, markets continue to price in some risk of renewed disruption.

The improvement in sentiment also extended to fixed income and currency markets. Emerging market bonds strengthened, with credit spreads tightening as investors grew more comfortable taking on risk. Reduced concerns about oil-driven inflation pressures further supported demand for EM debt. In currency markets, the U.S. dollar weakened as sentiment improved, while many emerging market currencies—particularly higher-yielding and commodity-linked ones—recovered, reversing earlier losses.

While markets welcomed the ceasefire, the situation remains fluid. Investors remain focused on how durable the ceasefire will be and whether diplomatic progress can continue, as well as the ongoing risks to energy infrastructure and global supply chains. Recent incidents, such as a drone attack on a key Saudi oil pipeline, highlight that vulnerabilities remain even as broader tensions ease. For now, markets appear to be pricing in a lower probability of worst-case outcomes, which has supported risk assets. However, because the underlying geopolitical tensions have not been fully resolved, some caution may be warranted. In practical terms, this could mean a modest risk premium persists in energy markets, and periods of volatility could return if conditions deteriorate.