US Stock Futures, Global Markets Plunge As Energy Prices Explode

Global stocks are in freefall after a fresh surge in oil and gas prices deepened concerns that the war in the Middle East will fuel inflation and hit growth. We saw clear escalation in Iran conflicts yesterday given the South Pars gas field strike and Qatar LNG facilities strike, both of which have effectively shut down all hope for a quick resumption of LNG flows from the Gulf. Bonds also tumbled amid a second day of major central bank meetings, and just to keep everyone on the same pace, gold and bitcoin also tumbled, despite some de-escalation effort (Trump said that Israel will not conduct further attacks on Iran’s main natural gas facility), but selloff pressure in global equities remains. Micron gave strong earnings and guidance yesterday after close (almost double the Street’s Q3 EPS guidance with companies noting strong AI demand), but the stock has been down 5% amid global risk-off moves overnight and high CapEx concerns. Only oil (and specifically Brent now that the market is pricing in a US oil export ban), LNG and various energy products are soaring, and threatening to send the world into a stagflationary spiral. As of 8:00 am ET, futures for the S&P 500 slipped 0.3% after the US benchmark wiped out gains for the week in the previous session. Nasdaq futures were down 0.5% while European equities were hit especially hard 2.1%, heading for the lowest level this year, as European energy prices exploded. A benchmark for Asian stocks dropped 2.8%.

In premarket trading, Mag 7 stocks are mostly lower (Alphabet -0.5%, Amazon -0.4%, Apple +0.3%, Nvidia -0.4%, Meta Platforms -0.2%, Microsoft +0.1%, Tesla -0.5%).

Mining stocks underperform as copper gave up its gains for this year and gold declined for a seventh day. Newmont (NEM) falls 7% and Freeport-McMoRan (FCX) declines 4%.
Accenture (ACN) falls 2% after the consulting company provided a third quarter revenue outlook that disappointed.
Alibaba’s ADRs (BABA) fall 4% as earnings plunged while revenue barely grew, underscoring the urgency behind the Chinese e-commerce leader’s drive to wring more profits out of a swathe of costly AI endeavors.
Canadian Solar (CSIQ) tumbles 19% after the company reported a wider than expected fourth-quarter loss and forecast first-quarter revenue that missed the average analyst estimate as global storage volumes declined.
Dlocal (DLO) rises 7% after the emerging markets payment services provider’s fourth-quarter results beat expectations on key metrics. The company also announced buyback plans and gave an outlook that analysts are largely positive on.
Five Below (FIVE) gains 7% after the retailer forecast net sales for the first quarter that beat the average analyst estimate. Analysts are positive about the company’s execution and note strong sales momentum.
Micron Technology (MU) falls 6% after the chipmaker gave a forecast for capital spending that was higher than expected, the latest example of investors being wary of elevated spending.
Rocket Lab (RKLB) inches 1% higher after the space company announced a $190 million hypersonic test flight contract.

In other corporate news, last week’s cyberattack against Stryker has delayed surgeries for some patients. Elliott Investment Management is said to have built a significant stake in Align Technology, the maker of Invisalign teeth-straightening products. And a study in The Lancet Psychiatry journal showed that Novo Nordisk’s Ozempic and Wegovy were linked to mental health benefits. In AI news, HSBC is said to be weighing deep job cuts, betting on AI to shrink its middle and back offices. And Tencent’s shares plunged after it failed to deliver a clearer vision of how it’ll profit off agentic AI, with investors disappointed by a lack of new targets or products.

Today's latest selloff comes as Brent extended gains since the start of the conflict to nearly 60%, climbing above $114 a barrel after attacks on some of the Middle East’s most important energy facilities. The advance in West Texas Intermediate was more muted, rising 1.4% as the gap between US crude and the rest of the world widened on expectations that Trump may impose export controls which would landlock WTI and send it much lower as the US is energy self-sufficient. The same can not be said for Europe however, which faces hell. Oh, and to that point, European natural gas jumped as much as 35%.

Oil’s surge already has global central bankers fretting about price pressures. The Bank of Japan kept interest rates unchanged on Thursday, following a hold by the Federal Reserve the previous day, with both signaling the conflict had clouded the policy outlook.

“The mood is clearly risk-off this morning, with markets still digesting a toxic mix of geopolitics and central bank messaging,” said Mathieu Racheter, head of equity strategy at Julius Baer. “The renewed escalation in the Middle East is reviving stagflation concerns just as investors were getting more comfortable on inflation up until March.”

Trump called for de-escalation after Iran unleashed waves of retaliatory strikes on energy facilities following Israeli fire on the South Pars gas field. The US wasn’t involved in that attack, Trump said, adding that any additional attacks by Iran on Qatar’s LNG facilities would prompt the US to “massively blow up the entirety” of the South Pars field.

For JPMorgan strategist Dubravko Lakos-Bujas, the market’s reaction to all this is too complacent. He notes that S&P 500 and oil correlations usually turn increasingly more negative after a 30% oil spike, and thinks not enough attention is being paid to the “bigger and more consequential question” of a negative impact on demand if the Strait of Hormuz does not reopen.

Meanwhile, the Fed’s message that that further interest-rate cuts are far from guaranteed finally fully sunk in for bond traders, who will be watching updates from other central banks including the Bank of England and the ECB in the next few hours. The Bank of Japan kept policy rates unchanged but added the Middle East to its list of risk factors without altering its inflation outlook, suggesting it still sees a potential path to raise rates in coming months.

European stocks were hit by a surge in natural gas prices amid attacks on Middle East energy infrastructure. Stoxx 600 is down 2% with all sectors ex-energy lower.Here are some of the biggest movers on Thursday:

Aker Solutions shares jump as much as 10%, the most in about a year, after the Norwegian energy industry services company announced its board is proposing an extraordinary cash dividend of NOK5.00 per share.
Nemetschek shares rise as much as 4.3% after the software company set a sales target suggesting the strong growth seen last year is set to continue.
Gulf Keystone shares gain as much as 5.8%, briefly hitting a 2022-high, after the oil and gas company delivered 2025 results ahead of expectations.
Inwit shares slump as much as 26% to a record low after customers Swisscom and Telecom Italia announced a joint venture to develop their own tower infrastructure.
Vonovia shares slide as much as 11% to the lowest level since 2023 after the residential real estate firm reported a portfolio valuation lower than analysts had expected and as German bond remain elevated.
Accor shares fall as much as 9.8% to its lowest in nearly a year after Grizzly Research LLC says it is short the hotelier’s stock.
J. Martins shares drop as much as 3.8% after a fourth-quarter earnings beat was overshadowed by the retailer’s warning that geopolitical uncertainty weighed on consumer sentiment in the opening months of 2026.
D’Amico International Shipping shares slump as much as 18% to the lowest in five weeks, after its biggest single investor sold shares at a significant discount.

Asian stocks declined, snapping a three-day advance, as surging energy prices and warnings from policymakers about a weakening economic outlook damped risk appetite across the region. The MSCI Asia Pacific Index fell as much as 2.2% Thursday, the most since Mar. 9, as Iran and Israel traded strikes on key energy facilities in the Middle East. All major markets in the region were in the red, led by losses in Japan and South Korea. Several miners, including Australian gold producers Northern Star and Evolution, as well as Japan’s Sumitomo Metal, were the top decliners on the regional benchmark. Meantime, Tencent shares fell after China’s most valuable company said it plans to curtail buybacks and failed to deliver a convincing strategy on profiting from agentic AI. AIA shares also edged lower after earnings that were broadly in line with analyst expectations and planning a $1.7 billion buyback.

In FX, the yen is firmer after BOJ’s Ueda kept the prospect of an April rate hike alive. Yen gains are capping potential upside for the dollar in a risk-averse environment. Swiss franc lags after an unchanged SNB rate decision, which saw the Bank talk up the prospect of intervention.

In rates, yields on government debt surged. Treasuries have extended Wednesday’s steep curve-flattening selloff, leaving front-end yields about 4bp higher. US 10-year yield, about 4bp higher on the day near 4.30%, at session high and the highest since August. 2s10s curve breached 46bp for first time since early August while 5s30s is back near 100bp after reaching flattest level since Jan. 27. Bigger losses grip UK bond market, where front-end yields have risen about 31bps, the biggest jump since 2022, on a much more hawkish than expected BOE decision. Continued erosion in outlook for Fed rate cuts has swaps pricing in just 11bp of easing by end of year, while expectations for hawkish shifts by Bank of England and ECB continue to mount ahead of Thursday’s decisions

Traders cemented bets on two rate hikes by the European Central Bank this year and are now leaning toward a similar move by the Bank of England. Swiss and Swedish policymakers left rates unchanged. The increase in gas prices has prompted an acceleration in rate hike bets ahead of today’s BOE and ECB policy announcements. Year-end bets look for 55bps of ECB hikes and 36bps from the BOE.

In commodities, Brent crude is up more than 6% as escalating attacks in the Persian Gulf threaten energy infrastructure. WTI is flat on expectations of a US export halt. Spot gold and silver are posting respective losses of 2.7% and 5.2%. Bitcoin is lower by 1.4%.

US economic data slate includes weekly jobless claims and March Philadelphia Fed business outlook (8:30am), February Leading Index, January new home sales and wholesale trade sales (10am) and 4Q household change in net worth (12pm)

Market Snapshot

S&P 500 mini -0.6%
Nasdaq 100 mini -0.6%
Russell 2000 mini -0.8%
Stoxx Europe 600 -2.1%,
DAX -2.4%,
CAC 40 -1.8%
10-year Treasury yield +4 basis points at 4.30%
VIX +0.6 points at 25.69
Bloomberg Dollar Index little changed at 1213.01
euro +0.2% at $1.1474
WTI crude +1.8% at $98.07/barrel

Top Overnight News

Escalating attacks on Persian Gulf oil-and-gas infrastructure are sending the U.S.-Israeli war with Iran into a dangerous new phase that threatens to worsen the crisis over global energy supplies. WSJ
The Pentagon has asked the White House to approve a more than $200 billion request to Congress to fund the war in Iran, according to a senior administration official, in an enormous new ask that is almost certain to run into resistance from lawmakers opposed to the conflict. WaPo
Trump said an angry Israel had "violently lashed out" and attacked Iran's major gas field, a significant escalation in the U.S.-Israeli war, but said Israel would not make further such attacks unless Iran retaliated. RTRS
Trump's administration is considering deploying thousands of U.S. troops to reinforce its operation in the Middle East, as the U.S. military prepares for possible next steps in its campaign against Iran, said a U.S. official and three people familiar with the matter. RTRS
Global benchmark Brent’s premium over US-focused WTI jumped to a 12-year high, highlighting how the Middle East conflict is hitting Asia and Europe harder than the US. BBG
Top Senate Democrats Schumer, Warren and Wyden plan to urge President Trump to end tariffs, issue refunds and stop the Iran war, arguing his policies are raising costs, Semafor reported.
China’s rate markets are signaling reduced prospects for monetary easing. Meanwhile, the PBOC vowed to maintain stable financial markets while implementing moderately loose monetary policy. BBG
The BoJ kept policy settings steady Thursday against a backdrop of conflict in the Middle East and volatile energy markets but stuck to its stance of continuing to seek rate hikes. The central bank maintained its policy rate at 0.75%, extending a pause stretching back to its last hike in December. WSJ
UK unemployment held steady in February as payrolls rose, signaling labor market stabilization. Payrolls increased 20,000 and the jobless rate was unchanged at 5.2%, both beating expectations. BBG
The ECB and BOE are both set to hold rates steady today, but the real focus is any guidance on the economic impact of the Iran conflict and what it may mean for policy. BBG
Sen. Thom Tillis said Wednesday that lawmakers are “very close” to an agreement to resolve a lobbying spat between banks and digital asset firms that could clear a path forward for landmark cryptocurrency legislation to advance in the Senate. Politico
Global benchmark Brent’s premium over US-focused WTI jumped to a 12-year high, highlighting how the Middle East conflict is hitting Asia and Europe harder than the US, MLIV said. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks declined as the region took its cue from the losses stateside, where the major indices suffered amid higher oil prices and yields, following energy infrastructure attacks in the Middle East and hawkish Powell comments. ASX 200 was dragged lower by losses in miners, materials and real estate, with sentiment not helped by mixed jobs data. Nikkei 225 suffered from the higher oil prices and as markets awaited the BoJ policy decision, which provided no major surprises, while the attention now turns to more central bank announcements, as well as the Trump-Takaichi summit later. Hang Seng and Shanghai Comp conformed to the broad risk-off mood with tech hit by weakness in semiconductors and following Tencent's earnings, while miners and airlines were also pressured after a decline in metal prices and surge in oil.

Top Asian News

China's Industry Minister said China is to focus on advanced basic materials, key strategic materials, and frontier new materials; called for exploring AI application in materials research, testing, and production.
China's government releases list of policies to strengthen, benefit and enrich the agricultural sector during this year. said policies cover subsidies for soybean, corn planting and producing, also covers cultivated land facility protection subsidies. Policies cover subsidies for inter-provincial employment and transportation subsidies.
Japan's Finance Minister Katayama said decided on energy subsidy as an emergency step, adds FX movements have been driven partly by speculators. Speculators can move easily due to the Bank of Japan and the summit. There has been some speculative trading in oil markets and authorities will do their utmost to respond to currency moves at any time. The ministry is prepared to take necessary actions against market volatility and is watching financial markets with an extremely high level of vigilance.

European Bourses are broadly lower as renewed attacks on energy infrastructure weigh on risk sentiment. The DAX 40 underperforms, pressured by Vonovia despite its return to profitability and plans to sell around EUR 5bln in assets to reduce debt. Sectors are weak across the board. Basic Resources lag as precious metals decline, while Travel & Leisure also underperforms. Energy is the relative outperformer, supported by elevated prices and policy support in Italy, benefiting names such as Eni.

Top European News

UK Unemployment Rate (Jan) 5.2% vs. Exp. 5.3% (Prev. 5.2%, Low. 5.2%, High. 5.3%).
UK Employment Change (Jan) 84K vs. Exp. -4K (Prev. 52K).
UK Average Earnings excl. Bonus (3Mo/Yr) (Jan) 3.8% vs. Exp. 4.0% (Prev. 4.2%, Low. 4.0%, High. 4.3%).

DXY is flat but off lows, holding above 100 in a 99.99–100.31 range as higher oil prices and a hawkish Fed backdrop support the dollar. Powell signalled policy remains restrictive with no imminent cuts, reinforcing inflation concerns tied to the Middle East energy shock.
JPY is firmer post-BoJ, driven by hawkish signals from Governor Ueda highlighting improving wage momentum. USD/JPY trades towards the lower end of a 159.04–159.87 range.
EUR is flat, with USD recovery capping upside while elevated energy prices limit downside ahead of the ECB. Focus is on whether the ECB shifts to a more hawkish tone amid rising inflation risks, though growth concerns remain. EUR/USD trades in a 1.1443–1.1491 range.
GBP trades subdued, sitting near the bottom of a 1.3245–1.3298 range as USD strength offsets limited domestic drivers. BoE expected to hold, with potential dovish dissent, though the energy shock may anchor a unanimous decision.
CHF is weaker post-SNB after explicit FX intervention language signals readiness to counter excessive strength. Initial CHF weakness pares as this stance was largely expected, with EUR/CHF moving up towards 0.9100.
SEK trades largely unchanged following the Riksbank decision, which keeps policy steady and maintains flexibility amid uncertainty from the Middle East-driven energy shock.
Antipodeans are firmer, recovering recent losses. NZD/USD shrugs off weak GDP, while AUD/USD remains choppy after mixed labour data, with gains supported by broader USD stabilisation.

Central Banks

BoJ kept its short-term rates at 0.75%, as unanimously forecast, with the decision made by 8-1 vote, as board member Takata voted for a 25bps hike. BoJ refrained from any major surprises, reiterating that it will continue to raise policy rates if the economy and prices move in line with its forecasts and will conduct monetary policy as appropriate from the perspective of sustainably and stably achieving the 2% inflation target. Furthermore, it stated the economy is likely to continue growing moderately and inflation expectations have risen moderately, while consumer inflation is likely to briefly slow below 2% and re-accelerate due to the impact of rising oil prices, with the price trend is to be in line with the goal in the second half of the outlook.
SNB maintains its Policy rate at 0.00% as expected; prepared to intervene in currency markets to country currency appreciation if needed; "willingness to intervene in the foreign exchange market has increased". The statement points to heightened uncertainty given the Middle East conflict. The main point of the statement was the FX language, commentary that sparked immediate pressure in the CHF as the SNB stated explicitly that it would counter rapid and excessive appreciation.
Riksbank leaves its policy rate unchanged at 1.75% as expected; rate is expected to remain at this level for some time to come. The Riksbank has kept its optionality open in whether the Middle East shock will lead to tighter or looser or monetary policy. A point evidenced by the scenario analysis that explores the avenues that could lead to either option. Additionally, the forecast adjustment for 2026 underscores this with the CPIF view increased while the growth view has been cut. But, pertinently, the policy path projection is unchanged vs the last MPR.
Norges Bank Q1 Regional Network Survey: Expect minor changes in output growth in the period to summer. Contacts expect annual wage growth of 4.2% in 2026 and 3.9% in 2027.
Brazilian Interest Rate Decision 14.75% vs. Exp. 14.75% (Prev. 15%), decision was unanimous. BCB reaffirms serenity and caution. Future interest rate decisions will incorporate new information on Middle East conflict depth and duration. Committee deemed it appropriate to begin the monetary policy calibration cycle.
Taiwan Central Bank leaves rates unchanged at 2.00%, as expected.

Fixed Income

UST are bearish following the hawkish tone from Powell and continued strength in energy prices. Futures drop around 15 ticks post-Fed, holding near session lows around 111-08 as higher oil and gas prices reinforce inflation concerns and keep yields elevated.
Bund futures are weaker, down 40 ticks at most with a trough near 125.70 as surging Dutch TTF gas and elevated crude push ECB pricing more hawkish. Focus turns to the ECB, which is expected to hold rates but likely revise inflation higher and growth lower.
Gilts underperform, gapping lower by 92 ticks and extending to an 88.32 low amid the global fixed income sell-off driven by energy and central bank hawkishness. Attention turns to the BoE, where rates are expected unchanged, with focus on the vote split and policy guidance.
France sold EUR 12.399 vs exp. EUR 10.5-12.5bln 2.40% 2029, 2.50% 2030, 2.70% 2031 and 3.50% 2033 OAT.
Spain sold EUR 5.546 vs exp. EUR 5.0-6.0bln 2.60% 2031, 2.55% 2032 and 3.30% 2036 Bono.

Commodities

Crude futures surge on escalation in the Iran war, with attacks on Gulf energy infrastructure across Saudi Arabia, Qatar, and Kuwait driving a sharp risk premium. Brent approaches USD 119.5/bbl at peak, with WTI lagging and trading at a wide ~USD 12/bbl discount, the largest spread since 2015. The disruption is amplified by threats to alternative routes such as Saudi Arabia’s Yanbu, a key Red Sea export hub used to bypass Hormuz, although prices pull back slightly after reports loadings resume.
Spot gold extends losses, breaking below USD 4,700/oz as a firmer USD and rising rate expectations (driven by energy-led inflation risk) outweigh safe-haven demand despite ongoing conflict.
Base metals remain under pressure in a risk-off environment. Copper erases 2026 gains as higher oil prices weigh on global growth expectations and demand, with prices trading in a USD 12,041–12,326/t range.
Saudi Arabia's Yanbu port reportedly resumes oil loadings, sources say. This comes following reports that oil loading were stopped.
Gazprom said Ukraine increased attacks on Turkstream and Bluestream pipelines on 17-19th March; said all attacks were foiled.
Abu Dhabi government noted operations have been suspended at the Habshan gas facility, while authorities are dealing with two incidents of falling debris from successfully intercepted missiles that targeted that gas facility.

Geopolitics

Iran's armed forces said Iran's retaliation against attacks on its energy infrastructure is not yet complete, SNN reported.
Iranian lawmaker said parliament is mulling passing a bill that would impose toll and tax on ships seeking safe passage in the Strait of Hormuz, ISNA reported.
US embassy says Americans should leave Saudi Arabia immediately.
US President Trump said Israel violently lashed out at Iran's major facility and the US did not know about the attack, while he called for no more attacks by Israel on South Pars and threatens the US will retaliate if Qatar's LNG is attacked again.
US officials say President Trump wants no more energy strikes but supported the attack on South Pars, and could once again be open to targeting additional Iranian energy facilities depending on Iran's actions in Strait of Hormuz, according to WSJ.
US President Trump's administration is considering deploying thousands of additional US troops to the Middle East as Trump weighs Iran next steps, according to sources cited by Reuters.
US Pentagon seeks more than USD 200bln in budget requests for Iran war, according to Washington Post.
Israeli official said war has moved into a new phase and may last several more weeks.
Saudi Foreign Minister said Iran must review 'misjudgements', and attacks will bring no gains, demands Iran stop proxy support and protect maritime navigation immediately, adds Iran has dealt with neighbours not in a brotherhood but with a hostile view. Added that Saudi Arabia reserves the right to take military action against Iran.
Saudi Arabia's Defence Ministry said a drone has fallen on the Samref refinery, currently assessing the damage.
Missile reportedly hit the Yanbu refinery in Saudi Arabia's Red Sea coast, according to Iran's semi official SNN.
Kuwait Petroleum Corporation said one of the operational units at Mina Al-Ahmadi refinery was targeted on Thursday by a drone, resulting in limited fire, no casualties reported.
QatarEnergy said natural gas and LNG facilities at were subjected to missile attacks causing fire and more severe damage.
French President Macron said he spoke with the Emir of Qatar and President Trump following the strikes that hit gas production sites in Iran and Qatar. Said, "It is in the common interest to implement without delay a moratorium on strikes targeting civilian infrastructure, particularly energy and water infrastructure.".
Security sources say a drone attack targets Iraqi naval forces based near Umm Qasr Port, although no casualties or damage that were reported.
Iraqi armed group Kataib Hezbollah announces suspension of attacks on the US embassy for five days, subject to conditions.
The escalation on the Lebanon front may continue regardless of the Iran war, Al Arabiya reported citing an Israeli security source.
Russia's Kremlin said trilateral US-Russia-Ukraine negotiations are on pause, but investment talks are to continue

DB's Jim Reid concludes the overnight wrap

Markets resumed their slide yesterday, with bonds and equities slumping amid an escalation in strikes against energy infrastructure across the Middle East, which led President Trump to call for a de-escalation of strikes against gas facilities overnight. Brent crude (+3.83%) reached its highest closing level since July 2022 at $107.38/bbl and has extended its advance to $111.78/bbl this morning. Together with a more watchful tone on inflation from Chair Powell after the Fed’s on hold decision last night, this sent investors pricing out the likelihood of rate cuts this year. And if that wasn’t enough, the US PPI surprised on the upside yesterday, so there was little respite anywhere on the inflation side. With the prospect of a stagflation shock back on the agenda, the S&P 500 (-1.36%) fell back to its lowest level since November, whilst the 10yr Treasury yield (+6.7bps) was back up to 4.27%.

The escalating tone out of the Middle East yesterday started after Tehran said airstrikes hit Iran’s South Pars natural gas field. That’s significant because it marked the first strike on their upstream facilities since the current war began. In turn, that led Iran to threaten retaliation, publishing a list of energy sites across the Gulf that they said were targets. And late in the US session we saw news that a missile strike against Qatar’s LNG export facilities resulted in “extensive damage”. We’ve since had some signs of the US seeking to contain the escalation. The Wall Street Journal reported that President Trump didn’t want any more strikes against Iran’s energy sites, and the President himself posted late last night that the US knew nothing of Israel’s attack against the South Pars gas field. President Trump added that “no more attacks will be made by Israel” against South Pars if Iran stops its own strikes, though he also threated to “blow up the entirety of the South Pars Gas Field” if Iran again attacked Qatar LNG.

Despite those comments, oil markets remain on edge in Asia this morning amid fears that energy infrastructure could be meaningfully damaged. Brent crude is up +4.10% to $111.78/bbl this morning after a slightly smaller gain through the European close yesterday. And with concern mounting about a more protracted conflict, the 6-month Brent future (+2.80%) moved up to a post-2023 high of $88.19/bbl yesterday. Interestingly, WTI crude has seen a more modest increase, trading at $96.92/bbl this morning. That’s less than a dollar above Tuesday’s close, leaving the Brent-WTI spread at its widest since WTI briefly traded in negative territory during the Covid pandemic in April 2020. This also comes as Trump administration officials are expected to meet oil sector executives today.

Against that backdrop, we had the Fed’s latest decision. As widely expected, the FOMC kept rates on hold at 3.50-3.75%, with Governor Miran the dissent in favour of a rate cut. The median SEP dot continued to pencil in one rate cut this year, though some of the more dovish members trimmed their expectations for rate cuts. Hawkish nuances were then more evident in Powell’s press conference. While the Chair unsurprisingly said that the uncertainty stemming from the events in the Middle East creates risks to both sides of the Fed’s dual mandate, it is the inflation outlook that drew more of his attention. Powell argued that the Fed needs to see “progress on inflation” to cut rates again later this year, noting that core goods disinflation was “really important” in this respect. Powell also removed a line on core services disinflation from his prepared remarks. All this left a sense of increased concern about the continued overshoot of the inflation target, though he did say that a “vast majority” of the FOMC did not anticipate rate hikes. In all, our US economists see Powell’s comments as suggesting that the case for rate cuts has weakened but remains stronger than the case for hikes. See their full reaction here.

Away from policy, Powell said that he plans to stay on the Fed board until the current DoJ investigation into him is “well and truly over”, also adding that he had not yet decided whether he would otherwise continue to serve his term as Governor which ends in January 2028. So while Powell’s term as Fed Chair is due to end in May, this leaves open the prospect of him remaining as chair pro-tempore beyond this if President Trump’s nominee Kevin Warsh isn’t confirmed by the Senate by then. Note that Senator Tom Tillis has said he won’t advance Warsh’s nomination until the investigation into Powell is resolved.

Powell’s press conference solidified the move higher in rates, which then further extended after the news of Iranian strikes damaging Qatar’s LNG plant. By the close, fed funds futures priced just 15bps of rate cuts by December (-10.9bps on the day), with the 2yr Treasury yield rising by +10.1bps to 3.78%, its highest since August last year. That’s despite policy rates being 75bps lower now than they were at the time. The sell-off was slightly more modest at the long-end, with 10yr yields up +6.7bps to 4.27%.

The backdrop of heightened geopolitical risks and higher rates weighed on risk assets, with the S&P 500 closing -1.36% lower. The decline was very broad-based with all 24 sector groups within the S&P 500 lower on the day as the index saw the most decliners (422) so far this year. Other asset classes also struggled, with gold (-3.74%) and bitcoin (-4.44%) slumping, while the dollar (+0.51%) advanced against all the G10 currencies as it benefited from safe haven flows.

The risk mood has remained cautious overnight. While US equity futures are little changed, Asian equities have continued the overnight losses on Wall Street. Across the region, the Nikkei (-3.25%) is the largest underperformer following the Bank of Japan's on hold decision. In other markets, the S&P/ASX 200 (-1.62%), the Hang Seng (-1.66%), the KOSPI (-2.52%), the Shanghai Composite (-0.95%), and the CSI (-0.99%) are all also showing significant declines.

In terms of the details on the BoJ, the central bank maintained its overnight call rate at 0.75% in an 8-1 decision. Hajime Takata was the only dissenter, advocating for a 25bps hike for the second consecutive meeting due to rising inflation risks. The bank noted that while inflation is anticipated to temporarily slow below 2% in the short term due to a deceleration in rice price increases, the conflict in the Middle East is expected to exert "upward pressure, influenced by the recent increase in crude oil prices." So a hawkish leaning take on the energy risks. Following the decision, 10yr JGB yield are up +4.6bps to 2.27%. The Japanese yen is a touch stronger against the dollar (+0.13%), though at 159.60 it remains within touching distance of its weakest level since mid-2024. We’ll be hearing from BoJ Governor Ueda at the post-meeting press conference shortly after we got to print. This may provide further policy guidance, with swaps currently pricing a 60% chance of a hike at the next BoJ meeting in April.

Turning back to yesterday’s moves, investors’ concerns about inflation weren’t helped by the US PPI print. That was for February, so doesn’t account for the impact of the recent energy spike, but it still came in above expectations. It showed monthly headline PPI at +0.7% (vs. +0.3% expected), which pushed the year-on-year reading up to +3.4% (vs. +3.0% expected). So that added to a pro-inflationary backdrop with the US 1yr inflation swap surging another +18.6bps yesterday to 3.32%, its highest level since September.

Looking forward, central banks will stay in the spotlight with both the ECB and Bank of England announcing their latest decisions today. For the ECB, it’s widely expected they’ll follow the Fed and the BoJ in keeping rates on hold. However, the Iran conflict has led to a big shift in pricing since the last meeting, with markets now pricing in an ECB rate hike by July and two hikes by the end of the year. So today the focus will be on how they communicate around that, and our European economists think they’ll acknowledge higher uncertainty and the upside risks to near-term inflation. They also think there’ll be a strong message that underlines the ECB’s commitment to price stability, and that they’re willing to act to avoid a repeat of the 2022-23 inflation shock. Indeed, they point out that saying this loudly and clearly might be the best way of ensuring inflation expectations stay well anchored. For more details, see their full preview here.

Shortly beforehand, we’ll also get the BoE decision, where they’re widely expected to keep rates on hold as well. As with the ECB, market pricing has seen a significant hawkish shift, having gone from pricing further cuts before the Iran strikes, to an 85% chance of a hike by December. For today, our UK economist thinks there’ll be a 7-2 vote, with the minority still preferring a 25bp rate cut. And looking forward, he expects them to message that there’s little need to adjust policy to a more restrictive stance right now. However, he also thinks they’ll signal that the assumed disinflation path to 2% looks less likely. See his full preview here for more.

Ahead of those decisions, European markets struggled yesterday, with the latest oil spike driving losses across the continent, particularly as investors priced in more rate hikes. So the STOXX 600 (-0.75%) and the DAX (-0.96%) saw their biggest decline in the last week. Moreover, sovereign bonds lost ground across the continent, with yields on 10yr bunds (+3.4bps), OATs (+4.0bps) and BTPs (+7.1bps) all moving back up again. Those moves came as the 1yr EUR inflation swap spiked by 32bps to 3.49%, its highest since April 2023.

Looking at the day ahead, and the main highlights will be the policy decisions from the ECB and the Bank of England. Otherwise, data releases include UK unemployment for January, the US weekly initial jobless claims, and US new home sales for January. Today also marks the start of a two-day EU leaders’ summit. Higher energy prices will be a big topic, though our economists expect that for now the policy response will be focused on country-level energy tax cuts

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