
Global: Ceasefire with caveats. We have reached a temporary, conditional de-escalation in the Middle East conflict as US President Donald Trump agreed on a two-week ceasefire until 22 Apr, on the condition that Iran reopens the Strait of Hormuz. The market has clearly recognised that this choke on energy-related commodities can be undone relatively quickly. Even if there is no deal, a ceasefire that would allow ships to transit the Strait safely would go a long way towards easing shortage fears (especially across Asia). War premiums eased across the board with Brent/WTI crude oil prices falling below USD100/bbI, reflecting easing concerns over supply destruction.
While there will almost certainly be more volatility ahead, this episode could mark the beginning of the end of the Middle East situation, as far as the market is concerned. The economic impact on interest rates should also be considered. Inflation is likely be elevated for some time, which should constrain aggressive bets on Fed easing. US March CPI is due on 10 Apr, while Eurozone inflation rose to 2.5% y/y in March from 1.9% in February, according to preliminary data – driven in part by a sharp surge in global energy prices amid tensions in the Middle East.
Given that the energy inflation is clear. there is a gradual broadening of the crisis as price pressures move downstream. As production processes rely heavily on petroleum products and natural gas, prices of chemicals, plastics, and fertiliser have already jumped 20-70%. The impact on the travel industry, from flight availability to airfares, is evident. Agriculture and manufacturing will follow. Moreover, electronic prices, already heating up, will have one more catalyst from energy inflation.
At the same time, the Fed’s “wait and see” stance should keep 2026 hike expectations off the table. The New York Fed reported that one-year inflation expectations increased to 3.42% in March, below expectations for a rise to 3.50% from 3.00% in February. Five-year inflation expectations held steady at 3%. New York Fed President John Williams downplayed oil-driven headline inflation, citing limited underlying inflation pressure in a “low hire, no hire” labour market. His expectation that the war will add 0.1-0.2% to core inflation aligns with the March Summary of Economic Projections, which revised the 2026 core PCE inflation forecast to 2.7% from 2.5%.

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