Equities in Headline Trading

MACRO FRAME

Markets need evidence of material progress in de-escalation as a necessary precondition to sustain a move to the upside. Until then, investors favor dollar liquidity. PMI readings out of several countries have reflected a direct impact to business activity and increased price pressures as a result of the conflict in Iran.

STOCK INDEX FUTURES

US equity index futures are higher as oil prices slipped amid reports that US officials sent a 15-point plant to Iran to end the war, which markets took as another sign of de-escalation. Iran has seen the plan and sent back their own demands, the AP reported, citing officials from intermediary Pakistan. While Iran continued to launch strikes on Wednesday, the proposal news has tentatively raised risk appetite. Equities are like to struggle for direction until investors get a better sense of when the war will end,  while looming first-quarter earnings may shift the market’s focus. Ultimately, Wall Street wants to see the talks evolve into a normalization to global oil markets and a reopening of the Strait of Hormuz. Until then, expect headlines to continue driving big price swings. Material evidence of de-escalation will likely be required for a sustained rally in the equities.

Tuesday’s S&P Global’s PMI survey showed the composite index fell to 51.4 in March, the lowest level since April of last year. Business activity slowed to an 11-month low as new orders slipped and price pressured surged. The slowdown was led by the services sector, while the manufacturing recorded an uptick in growth. However, the manufacturing reading was deceivingly high, as firms stockpiled goods following the strike down of President Trump’s tariffs.

Watch point: Material signs of de-escalation will support equities, though the conflict still presents real risks to future gains in the absence of certainty.

CURRENCY FUTURES

US DOLLAR: The USD is 0.15% lower at 99.28, following the drop in energy prices. Energy prices fell on a report that the US had sent Iran a 15-point plan to end the war, though Iran had reportedly sent back their own demands. FX markets remain caught in limbo as traders await further clarity on US-Iran negotiations. Underpinning the dollar is inflationary PMI data for March, after S&P Global’s surveys revealed that businesses were facing increasing input costs as a direct result of the war, which lead to the sharpest rise in selling prices since August 2022.

Investor demand for dollars continues, as shown by the decline in the one‑year EUR/USD cross‑currency basis, which captures the premium or discount in the cost of swapping euro funding into dollars for one year relative to covered interest parity. Since the Iran conflict broke out, the basis has fallen by about 8.5 bps, indicating stronger demand for dollar funding and tighter dollar liquidity conditions. In this market, the basis moves lower when dollar demand outstrips supply, and rises when dollar liquidity becomes more plentiful.

Watch point: Any confirmation that the Fed share of the global hawkish pivot is hardening, via speeches or further repricing in front‑end rates, would likely re‑anchor DXY toward recent highs despite cross‑currents from EUR and GBP.

EURO: The euro is little changed at $1.1605, as the relief in oil prices was overshadowed by a sharp drop in Germany’s Ifo Business Climate Index. The index fell two points to 86.4, its weakest reading since February 2025, as businesses flagged the Middle East conflict as a driver of uncertainty and were cautious of its impact of an economic recovery in Germany.

Recent PMI data from Germany, France, and the eurozone pointed to rising stagflation risks, with higher inflation ahead not subject to the energy sector alone resulting from higher input costs and supply chain disruptions. Eurozone composite PMI slipped to 50.5 in March, below forecasts (51.0) and February’s reading (51.9), as services (50.1) activity hit a 10-month low, while manufacturing (51.4) offered a deceivingly positive figure. Factory orders supported the manufacturing reading, growing at their fastest pace in four years – reflecting front-loading of purchases following the Supreme Court’s knockdown of president Trump’s tariffs. However, manufacturers reported sever supply chain shocks and sharp increases in input and output prices as a result of the conflict in Iran. The figures reflect the first data points to cover the period since the conflict in Iran began, revealing how the war has impacted business sentiment.

The PMI readings underscore the broader inflationary fears that have gripped markets and shifted ECB policy expectations. As of Tuesday’s close, rate markets priced in nearly three 25 bps rate hikes from the ECB, with hikes priced in for June, July, while favorable to the third in December. Despite the hawkish backdrop, the conflict in Iran has led investors to favor dollar liquidity as the safe haven of choice, as Europe’s lack of energy independence makes the currency particularly vulnerable to the economic impact of higher energy prices.

Watch point: The sustainability of EUR strength will hinge on whether risk sentiment stabilizes and energy prices avoid another leg higher.

BRITISH POUND: Sterling is little changed at $1.3422, as traders stay cautious over US efforts to end the war in Iran, while data showed inflation in the UK held steady at 3% in February – ahead of the surge in energy prices. While the report was broadly in line with expectations and revealed that it was on a path downwards, the outlook for prices has radically changed.

The UK’s PMI data was on theme with other readings in Europe – higher input prices for manufacturers resulting in increased output prices and souring business sentiment as a result of the Iran conflict. The data also revealed that payrolls fell for the 18^th consecutive month, highlighting the UK’s fragile economic position of stagnating growth and growing inflation risks on top of already persistently high prices. March’s PMI’s confirm that the conflict has already begun to raise inflationary pressures in the economy, which are likely to negatively impact GDP growth. If these dynamics continue, the dilemma could reignite debate among Bank of England policymakers over upside risks to inflation and downside risks to the economy. Still, markets are expecting the BoE to raise rates twice this year, with 70 bps of total easing priced in by Tuesday’s close.

Watch point: Signs of de-escalation between the US and Iran are likely to provide short-term support to GBP, but evidence of an increase in inflation presents a downside to growth and will put the BoE in a bind.

JAPANESE YEN: The yen moved little overnight, steadying near 158.80. The Bank of Japan released minutes from its January policy meeting, which revealed that many policymakers saw the need to keep raising interest rates. Some policymakers called for timely action on rising inflationary pressures, highlighting a hawkish bias ahead of the rise in energy prices. The yen’s recent weakness was also in discussion, some policymakers called for increased vigilance on the yen’s impact on inflation, which they viewed as a growing risk. Still, money markets are unchanged in their expectations of a July rate hike.

Earlier in the week data showed Japan’s annual inflation eased to 1.3% in February from 1.5% in the prior month, while core inflation, which excludes fresh food but includes energy, rose 1.6% year-over-year in February, slowing for a third straight month and coming in below forecasts of 1.7%.

Watch point: A confirmed April hike could pull USD/JPY below 155, particularly if US yields stabilize; however, renewed US dollar strength or further escalation in the Middle East could limit yen gains despite BoJ normalization.

AUSTRALIAN DOLLAR: The Aussie is sharply lower, falling 0.50% to $0.6958. Overnight data showed inflation was unchanged in February, brining the annual pace of inflation down to 3.7% from 3.8% in January. Core inflation came in a tick below forecasts at 3.3%, but stayed stubbornly above the Reserve Bank of Australia’s target range of 2% to 3%. Rising energy costs are almost certain to drive CPI inflation up in March. Markets imply a near 50% chance the RBA will lift the 4.1% cash rate at its next meeting on May 5, and could take rates as high as 4.75% by year-end. Outside of the rise in energy prices, domestic data has proven inflationary and supportive of the RBA’s tightening bias in 2026.

Disappointing business activity data from Tuesday has also added pressure on the Aussie, with the manufacturing PMI slipping to a five-month low of 50.1 in March 2026, while the services PMI recorded its first contraction since January 2024, at 46.6.

TREASURY FUTURES

Yields are lower across the curve, tracking the move downwards in oil prices on reports that the US sent Iran a proposal to end the war. Markets are expecting the conflict in Iran to have sustained impact on prices as front-end inflation pricing remains firm, with one-year inflation swaps moving higher alongside energy, pointing to a market that is increasingly pricing near-term CPI upside risk.

Tuesday’s PMI data revealed that the rise in energy prices and other commodities were already being passed onto consumers, as input and output costs rose at their sharpest pace in nearly four years. The question is whether these price increases are going to be sustained. The answer is the conflict in Iran. The longer supply chain disruptions and energy prices remain elevated, the more likely business will pass additional costs onto consumers in the face of the conflict. Unlike the dynamic of tariffs, which were partially absorbed by businesses, the increase in energy prices and other materials will be too much burden for business to face on top of existing temporary tariffs, making it likely those impacts will be felt by consumers.

Fed rate pricing is remains favorable to no policy action in 2026. However, the Fed is more likely to cut rates than to raise them given its dual mandate and the possibility of the bank looking through an energy price shock in an effort to support the labor market.

Watch point: Tuesday’s PMI data serves as the first economic indicator to confirm the speculation that higher energy prices will drive up broader inflation. Markets will now look to see if the rise in prices will be sustained, potentially prompting a Fed rethink.

The spread between the two- and 10-year yields is 45.90 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.877%.

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