9 min readWeekly recap:
US stocks rallied for a third straight week, with the S&P 500 and the NASDAQ reaching fresh record highs. The strength of the move reflected a notable increase in risk appetite, supported by growing optimism around a potential, more permanent truce between the US and Iran. There were also reports that Iran had reopened the Strait of Hormuz, although the US blockade remained in place, suggesting the situation was not fully resolved.
On the data front, the US Producer Price Index (PPI) came in softer than expected, rising 0.5% month-on-month versus expectations of 1.2%, in line with February’s reading. This helped ease immediate inflation concerns and reinforced the narrative that price pressures may be stabilising, at least in the near term. That dynamic has been supportive for equities, particularly given how sensitive current valuations are to the rate outlook.
US earnings season continued, revealing that the underlying health of the US economy remains strong, though concerns over the outlook persist.
Week ahead:
Geopolitics: US–Iran ceasefire deadline
The situation in the Middle remains very fluid and volatile. At the end of last week, Iran reopened the Strait of Hormuz only to close it again on Saturday as the US continued its blockade. The US and Iran were set to continue peace talks in Pakistan on Monday, 20 April; these come as the ceasefire is due to expire on 22 April.
However, Iran has pulled out, and Trump threatened new attacks on Iran’s infrastructure if a deal isn’t reached, raising concerns of escalation just days after saying the war was almost over.
While optimism over the end of the war pulled oil 13% lower last week, the continued closure of the Strait of Hormuz and worries over the ceasefire ending have seen oil jump 5% on Monday, while US futures head lower. The Middle East continues to be the key driver in the market, with headlines impacting oil prices, inflation expectations, and sentiment.
Kevin Warsh Senate hearing (Tuesday)
Warsh is expected to face Senate questioning on 21 April. The hearing will likely focus on Federal Reserve independence, his relationship with the White House, and his views on inflation, the labour market, and financial regulation.
He has previously outlined a framework that diverges from the current Fed consensus, including openness to lower interest rates alongside balance sheet reduction (quantitative tightening). He has argued that tighter financial conditions can still be achieved through liquidity withdrawal rather than relying solely on higher policy rates. Given expectations of higher inflation, his views will be scrutinised by the Senate.
There may also be scrutiny around disclosures, potential conflicts of interest, and broader governance issues. Markets will be watching closely how strongly he defends central bank autonomy, particularly amid political pressure to cut rates even if inflation remains elevated. The approval process has already taken longer than expected, adding another layer of uncertainty.
Senior Republican on the Senate banking committee, Thom Tillis, refuses to vote for Warsh unless the DoJ drops its inquiry into Powell, on costs that overrun related to renovations at the Fed. The DoJ is refusing to budge, adding to uncertainty, which could weigh on the USD and boost Gold.
UK Labour Market & Inflation Data (Tuesday & Wednesday)
UK employment conditions continue to soften, with unemployment rising to around 5.2%, a multi-year high. Employers appear reluctant to increase hiring given the weaker outlook for the UK economy and cost pressures linked to recent changes in the minimum wage, which are thought to affect younger workers disproportionately.
This reluctance to hire is contributing to slower wage growth, now around 3.3%, marking the lowest level since 2020. However, public-sector wages remain elevated at around 5.9%, creating a mixed picture of underlying inflation pressures.
While UK economic growth was stronger than expected in February, the outlook remains weak. Inflation had cooled but will likely pick up again due to the energy price shock, complicating the outlook for monetary policy.
Expectations are for CPI to rise to 3.3% YoY in March, up from 3%. Markets had been expecting the Bank of England to begin cutting rates before the Iran war, but renewed energy-related inflation pressures have changed the market’s positioning. The markets now expect the BoE to hike rates once, if not twice, this year.
However, BoE governor Andrew Bailey has said the market is getting ahead of itself with rate hikes. Still, hotter inflation could lift GBP/USD.
US Retail Sales (Tuesday)
The US economy continues to show relative resilience compared to the UK and euro area, although it is not immune to external shocks. Rising gasoline prices, linked to recent geopolitical developments, could weigh on consumer spending in the near term.
Retail sales are expected to rise 1.3% MoM, up from 0.6% previously, suggesting that the US consumer is holding up despite rising pressure on real incomes. The key question is whether consumption remains robust or begins to soften more meaningfully going forward.
Energy prices have eased significantly from recent highs, and if geopolitical tensions ease further and supply routes reopen, the increased inflationary pressure and any drag on consumption could prove temporary. However, if higher fuel costs persist, this may start to feed more clearly into broader spending patterns. Strong data could support US stocks and the Dow Jones.
Eurozone Flash PMI (Thursday)
Eurozone PMI data will provide an up-to-date view of how the region is absorbing the impact of geopolitical tensions. March data already indicated that the earlier improvement in activity at the start of the year had largely been eroded, with the composite PMI falling back to 50.7, a 10-month low, amid stagflation fears.
April figures could show further weakness, potentially signalling contraction alongside renewed inflation pressures. However, if headlines point to renewed de-escalation in geopolitical risks, there is a chance that weaker data will be partially looked through. Weaker-than-forecast PMIs could pull EUR/USD lower.
US PMIs (Thursday)
The US composite PMI fell to 50.3 in March, its lowest level in nearly three years, as overall business activity lost momentum. The services PMI dropped to 49.8, entering contraction for the first time since 2023, while manufacturing remained more resilient at 52.3, marking an eighth consecutive month of expansion.
The April release will offer a timely indication of how the US economy is navigating ongoing uncertainty stemming from the Middle East conflict. Expectations are for a modest improvement in the composite PMI, though downside risks remain, particularly if weakness in services persists.
A further slowdown in activity could raise concerns about growth, while any stickiness in inflation would complicate the Federal Reserve’s outlook, reinforcing the current tension between growth and price stability. Weak data could drag on US stocks and the S&P 500.
US earnings
Over 90 companies of the S&P 500 will post Q1 earnings this week. Wednesday will see Tesla and IBM update the market, followed by American Express and Intel on Thursday.
Japan Inflation (Thursday)
Expectations are for March CPI to rebound after February’s cooling, with CPI expected at 1.5% YoY, up from 1.3%, while core CPI is expected to return to 2% from 1.6% to back the BoJ’s formal target. February’s weakness was partly due to government utility subsidies, whilst March is likely to reflect renewed energy pass-through amid higher global oil prices linked to Middle East tensions.
BoJ is due to hold its monthly policy meeting on 27-28 April. If core inflation remains above target, it would support the central bank’s path towards gradual rate hikes later in the year.
Currently, market pricing has shifted sharply towards a hold after recent comments from BOJ governor Ueda, who reined in hawkish expectations. Hotter-than-expected inflation could lift the yen, pulling USD/JPY lower.
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