The first War inflation tests – Markets Weekly Outlook

• Discover our Weekly Market Outlook, exploring themes and events that forged financial flows throughout the week.
• Markets conclude a very volatile week, with hopes for peace going back and forth and sentiment losing its head
• Get ready for next week's action by exploring upcoming events across global Markets.

What a rollercoaster week. It began with soaring optimism and ended with a brutal geopolitical reality check, capped off by a blockbuster jobs report dropped into an empty market.

The Early-Week Melt-Up

As March closed and April began, risk assets caught a massive bid. Investors rushed to buy the dip amid widespread speculation that the US-Iran war was nearing a diplomatic resolution.

Stocks exploded higher, the US Dollar formed a double top (which then failed), and oil prices corrected sharply as the war premium appeared to evaporate.

The April Fool’s Fakeout

Unfortunately, this optimism turned out to be a cruel April Fool's fakeout. By Thursday, the narrative had violently reversed. A hawkish White House address from President Trump completely derailed hopes for peace, reawakening fears of a prolonged conflict and potential ground operations.

Energy markets took the brunt of the panic.

WTI Crude exploded by 14% overnight, flashing up to $114 per barrel before settling back above $110.

The stock market faced severe intraday chaos, gapping significantly lower at the open as algorithms dumped risk, though frantic short-covering later helped major benchmarks finish relatively unchanged. Precious metals also experienced wild volatility as traders scrambled to re-price the escalating conflict.

The week concluded with a curveball, and luckily no one is there to trade it.

The March Non-Farm Payrolls report, released on Good Friday, showed the labor market roaring back to life.

Unemployment dropped to 4.3%, private payrolls surged by an unexpected 186K, and wage growth cooled to +0.2% month-over-month. The report cements the Federal Reserve’s holding stance – Don't expect to see cuts anytime soon.

Stock Markets are closed for the holiday and futures stuck in a highly illiquid, abbreviated session leaving Wall Street was left paralyzed.

Traders are now forced to sit on their hands over a long weekend, balancing robust domestic economic data against the looming threat of military escalation in the Middle East – Watching the highlights of this weekend's action will be mandatory to understand the action next week.

Expect fierce repositioning and wild gaps when the bell finally rings on Monday morning – But real volumes will only return on Tuesday (as the largest players are off for the Easter long-weekend\.

This week's action was nothing short of chaotic, with up-and-down swings across virtually all asset classes, leaving a sense of range-bound trajectories as long as clarity doesn't return.

This could replace the prior large downtrends in Metals and Stocks, contingent on the situation not worsening or suddenly improving.

WTI remains the asset to watch to assess the general Market mood – one thing to keep in mind is that there has been some progress this week, but more will be needed for the positive mood to remain.

Discover:

• USD/JPY under pressure as markets price in a BoJ rate hike
• Non-Farm Payrolls for March large beat on expectations! Markets closed for Good Friday
• Crude Oil (WTI & Brent) keeps playing tricks on Markets 32 days into the Iran War

Traders will have to get ready for an intense week, with not only macroeconomic data which should start to reflect the first impacts of the war, but also a more erratic Market behavior regarding the war, which seems to be reaching its most confusing stage.

Next week's RBNZ Decision meeting will be the main event for APAC Markets, but it could also largely be a non-event, currently priced in at 90% for no change (the other 10% is a small premium for a hike).

Communications for upcoming rate hikes will be closely watched, so keep that in mind as it may reshape the path for the NZD.

For the rest, a few mid-tier releases for Australia and Japan including PMIs for the former, and trade data for the latter.

The Chinese Inflation report could also be a mover for the AUD – with inflation recently bouncing higher, so policymakers will want to see this continue..

This week was big for UK data but next week will be absent of any catalyst for the GBP.

The Euro will however be at the center stage, with the first inflation releases that should contain influences from War with Retail Sales and PPI for the Eurozone on Wednesday, and the German CPI on Friday.

Any large beat in inflation could warrant a safety hike from the ECB at the next meeting! (Currently priced at about 60%).

The US will grab the spotlight again, with high-tier releases spanning across the entire coming week.

Monday will welcome the ISM Services PMI, an interesting release as Services have started to cool down from ever-higher levels (cooler data there will be a sign of an economic turn).

The Minutes from the Mid-March FOMC meeting will also be released on Wednesday (and they have finally become a bit more interesting; look for communications to see what the Fed is watching for decision-making).

Thursday will see the release of Core PCE, expected at 3% once again and hopefully not much higher. If it combines with another huge beat in CPI on Friday (headline expected at 0.9% !!! – Huge impact from rises in Oil prices), hikes could really be back on the table, and that would not be good news for the US Market.

Participants will also be looking closely at the Core release to see how Oil inflation spreads to other products.

For Canada, Tuesday will see the release of the Ivey PMI data (a mover for the Loonie) and the CA Employment report for Friday (that goes without saying).

Keep a close eye on geopolitical developments, particularly those regarding a potential ground invasion, as they will be the final piece of the puzzle for Market sentiment and Oil prices.

Safe Trades and enjoy your long weekend! Happy Easter!

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