U.S. equities rose early as investors leaned into headlines that the U.S.-Iran conflict could end within weeks, with Powell noting inflation expectations were grounded and data showing firmer retail sales and ADP hiring; Trump’s later address vowing to hit Iran “extremely hard” reignited the risk-off sentiment, boosting oil and the USD and knocking futures lower into the week’s end. Canada followed the same swing, with a modest StatCan growth estimate and a Bank of Canada (BoC) hawkish-hold message keeping rates sensitivity high while oil moves dictated CAD movements. Europe participated in the midweek rebound but faced an energy-led inflation shock after German prices jumped, nudging European Central Bank (ECB) hike expectations, before Thursday’s escalation-driven selloff. China/EM traded unevenly, with major indices down early, up on de-escalation hopes, then lower again as crude spiked.
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U.S. fixed income markets began the week with yields moving lower as geopolitical escalation in the Middle East drove a flight to safety and prompted investors to pare back expectations for further Federal Reserve tightening, with comments from Chair Powell reinforcing the view that policymakers would look through near-term energy-driven inflation pressures. Midweek, optimism that the conflict could de‑escalate supported risk assets and kept rates well contained, though better‑than‑expected retail sales and resilient labour data limited the rally as rate‑cut expectations were scaled back. In Canada, bonds largely tracked U.S. developments, with yields easing early on growth concerns and then stabilizing as markets weighed softer domestic data against lingering energy‑related inflation risks. European sovereigns outperformed through midweek, supported by safe‑haven demand and a broad rally in core bonds, before selling off sharply late in the week as geopolitical tensions flared again and inflation concerns re‑emerged, particularly at the long end.
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Canada’s economy eked out a modest gain in January, with monthly gross domestic product (GDP) rising slightly as strength in most goods-producing industries offset lingering manufacturing weakness. According to Statistics Canada (StatCan), GDP in January rose by 0.1% on a monthly basis, following a 0.2% gain in December, pointing to a fragile start to the year. Analysts had forecast no growth in January and expect growth to take a bigger hit in the coming months as the impact of high crude oil prices due to the Iran war curtails consumer spending and spikes inflation. Overall, nine of the 20 industrial sectors recorded growth in January.
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Factory activity expanded in the U.S. in March, but the latest monthly reading from the Institute for Supply Management signalled a strong warning that inflation is resurgent amid the war in Iran. The ISM Manufacturing PMI for March rose to 52.7, up modestly from February’s 52.4 and marked the third consecutive month in expansionary territory. Readings above 50 indicate a sectoral expansion. Analysts were expecting a reading of 52.1.
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Eurozone inflation soared past the European Central Bank’s (ECB) 2% target this month as surging oil and gas costs drove up headline prices, but the jump was smaller than expected and core inflation declined, muddying the picture for policymakers. Overall inflation in the 21 countries sharing the euro currency jumped to 2.5% in March from 1.9% a month earlier, below economists’ expectations for 2.6% increase, as energy costs rose 4.9%.
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