Week of 30 March

Geopolitics was the driver of the week, overshadowing a light economic calendar that included flash PMIs and UK inflation figures. Gold entered a bear market and the Nasdaq a correction, while Brent swung between $110 and $94 per barrel.

There is a busier economic schedule for the week ahead, including flash Eurozone CPI, final global PMIs and US NFP figures.

Week in Review

Geopolitics continued to dominate the markets, which started the week lower across the board after US President Donald Trump threatened a substantial escalation if Iran did not reopen the Strait of Hormuz by Monday evening. However, the mood quickly reversed after he put the threat on hold amid negotiations, which saw crude prices falling by midweek as a peace plan that included a 1-month ceasefire was offered to Iran. Iran also allowed more ships to transit the Strait, leading Brent to dip below $100 per barrel.

However, past midweek, optimism started to fade as Iran denied negotiations were underway, and there were reports that the US was planning to deploy a further 10K troops to the Middle East. Trump extended the deadline for attacks on energy infrastructure in Iran a second time to next week. He also reiterated that he saw a 4- to 6- week timeline for the war.

UK core inflation came in slightly hotter than expected, putting pressure on the BOE to tighten policy, and the pound lost ground through the rest of the week.

Flash PMIs showed a significant global slowdown in economic activity due to the war, with Europe remaining in expansion. However, analysts noted rising price pressures, risking the region's entry into stagflation.

Tech stocks led losses in US indices in the second half of the week, with memory stocks in the lead, pressured by rising US bond yields. Analysts noted concerns over rising private credit risks amid low demand for Treasury auctions, potentially signalling tight liquidity.

Biggest Market Movers

• After dropping on Monday amid hopes of de-escalation, the dollar index trended higher as investors grew concerned that the war would not be resolved soon.
• AUD was the worst performer among the major currencies after lower-than-expected inflation led the market to delay the expected RBA rate hike to May from April.
• Gold is set to close the week lower after it fell as low as $4,100 per ounce at one point on Monday, but has trended upward in the latter half of the week.
• The Nasdaq had its worst single-day performance since the war began on Thursday, amid risk aversion and higher yields.
• WTI started the week above $100 as investors feared an imminent strike on Iranian energy infrastructure, fell to $86 when Trump announced a 5-day reprieve, and has since climbed back above $96.

Top Events in the Week Ahead

Trading this week will be shortened due to most markets being closed on Friday for a holiday. However, markets are likely to swing based on developments in the Middle East, as the latest extension of threatened attacks on Iranian infrastructure will expire on Wednesday. Traders will be monitoring the Strait of Hormuz after Iran insisted on Friday that it was closed but that it was allowing vessels to transit through its territorial waters.

There were rumours of a multi-national naval force led by Gulf States that would try to force open the Strait, while the weekend has been the usual setting for Trump to escalate the situation. Some analysts suggest that the US could use the weekend as cover to seize Iran's Kharg Island, which houses 90% of the nation's oil export infrastructure. The last cargoes of crude oil to leave the Gulf before the war began are arriving at Asian ports, which could exacerbate the energy supply crisis among SEA nations.

On the data side, the theme of the week will be digesting the first official data on the economic impact of the war and how that will affect the outlook for interest rate decisions in April.

Eurozone Gives First Inflation Measure of the War

On Tuesday, the Eurozone will release flash inflation figures for March, the first official data since the war. Traders will be keen to see if there is any initial impact of higher energy costs. But Spain already reported on Friday, slightly below expectations. Markets could already get a sense of the tenor from Monday's German CPI, which is expected to advance to a 2.6% annual rate from 1.9% previously.

The next day, headline Euro Area inflation is projected to tick up to 2.2% from 1.9%, while the core rate is projected to decline to 2.3% from 2.4%. It's worth noting that many EU countries have regulated gasoline and diesel prices, which slows the pass-through of crude price movements to consumers. With EURUSD near 1.1500 close to the end of the week, the pair could extend losses to 1.1393. On the upside, 1.1641 remains a major resistance to watch.

China PMI Brings Aussie in Focus

Both the official and private Chinese PMIs are released at the start of the week, with traders looking to see whether the pattern of flash figures reported last week for other economies will repeat. Overall activity remained resilient, but there was a noticeable price increase. China is more exposed to the war, as the largest importer of Gulf-sourced crude. China's official manufacturing PMI reading is expected to stay in contraction but advance to 49.8 from 49.0.

Meanwhile, the private RatingDog measure is anticipated to continue expanding but step back to 51.3 from 52.1 previously. After breaking below 0.7000 for good, AUDUSD could revisit 0.6800, with a reclaim opening the door to 0.7021.

US Labour Market Expected to Weaken Further

US March nonfarm payrolls are expected to return to positive territory at 48K after last month's shocking -92K report. However, that remains well below the replacement level, and the unemployment rate is expected to tick up to 4.5% from 4.4% a month earlier. The impact on markets could once again be somewhat muted, as the focus has shifted to inflation. However, it could set the stage for a rapid reversal in gold if there are clear signs that the war will end soon. Trading at $4,400 per ounce, the two levels to keep an eye on are $4,100 and $4,660.

Other Events and Earnings

Monday has UK mortgage approvals. Tuesday includes RBA meeting minutes. Japan's Tankan large manufacturers index comes out on Wednesday. For Thursday, the US trade balance data is expected. Friday sees China RatingDog services PMI.

A very light corporate reports schedule includes earnings from such companies as Nike, McCormick, TD Synnex, and ConAgra.