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MACRO FRAME

Markets resume news flow trading, while inflation prints from Europe confirmed the conflict’s impact on energy prices. Meanwhile, February’s JOLTS makes the case for Fed easing later in the year.

STOCK INDEX FUTURES

US equity index futures are lower in response to President Trump’s speech Wednesday night, which offered no further clarity on the conflict in Iran. Trump vowed more aggressive strikes on Iran in the next two to three weeks, though offered no concrete timeline to open the Strait of Hormuz. Fears that the conflict may leave Iran with a stranglehold over the Strait of Hormuz continue to be reflected in higher energy prices and dampened risk sentiment. Oil prices are sharply higher this morning, with WTI up nearly 9.5% to $109.60, while Brent Crude rose 7.7% to $108.96. Price direction in equities continues to reflect an environment where trading is determined by news flow and less technical and fundamental factors.

ISM’s manufacturing PMI data showed the index expanded for the third consecutive month in March, PMI rising to 52.7. While headline strength was driven by accelerating production and slowing supplier deliveries, the report also showed that demand indicators softened, and a surge in input prices. Input prices reached nearly a four-year high, reflecting the compounding pressures of the conflict in Iran.

Weekly initial jobless claims came in at 202,000, moving the four-week MA lower to 207,750.

JOLTS data revealed that job openings held relatively steady while hiring fell to its lowest rate in nearly six years, signaling that employers are filling fewer positions even as demand for workers remains nominally elevated. The quits rate, a key proxy for worker confidence, ticked down to its lowest level in years, suggesting employees are becoming more cautious about voluntarily leaving jobs.

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

CURRENCY FUTURES

US DOLLAR: The USD is 0.57% higher to 100.218, following the rise in oil prices in response to President Trump’s speech on Wednesday night, which offered little new clarity on the conflict in Iran and saw renewed safe haven demand for the greenback. The dollar had fallen in previous sessions in response to waning safe haven demand as hopes of a ceasefire gripped markets, though the dollar has since recovered most of those losses. Fed rate pricing inched to the hawkishly following the speech, though further tightening out of the central bank is unlikely. February’s JOLTS data confirmed a stable labor market but revealed that the hiring rate fell to its lowest level since April 2020. The figures, not consistent with a robust labor market, have likely taken a move up from the Fed entirely off the table, a factor that had previously been offering the dollar support. Dollar flows ahead of Friday’s labor data are likely to remain subject to news flow headlines.

Watch point: JOLTS data confirms that a move up from the Fed is out of the picture and reinforced the narrative that the Fed is well positioned in its policy rate.

EURO: The euro fell 0.55% to $1.1526 as risk sentiment soured and as oil prices jumped in response to President Trump’s speech Wednesday. Euro price action remains driven by oil, risk sentiment, and broader macro news flow. Money markets are pricing a 64% probability of a rate hike at the European Central Bank’s meeting in April and are fully priced in for a hike at June’s meeting.

While recent data revealed euro area inflation jumped to 2.5% YoY in March, the rise in inflation is the product of higher energy prices. Core inflation fell to 2.3%, while a narrower measure that excludes food, energy, alcohol and tobacco held steady at 2.2%, unchanged from February. Services inflation, the stickiest and most policy-relevant component, actually eased to 3.2% from 3.4% in February. The critical risk factor is not the current inflation print but the persistence of the energy shock.

Watch point: March’s inflation data confirmed that headline inflation was dragged higher by rising energy prices, while other components were reassuring to the broader inflationary picture. A rate hike at the ECB’s April meeting appears unlikely, while the risk of prolonged conflict in Iran builds the case for a June hike.

BRITISH POUND: Sterling is 0.75% lower at $1.3207, reflecting the drop in risk sentiment as oil prices surged in response to President Trump’s speech Wednesday night. Still, money markets are pricing 55 bps of tightening by year-end, down from over 75 bps prices last week.

Economic data last week showed British business activity grew at the slowest pace in six months and manufacturers’ input costs accelerated at the fastest rate since 1992, while retail sales fell. The conflict in Iran has taken UK politics out of the spotlight, though local elections in early May create further risk of volatility. Keir Starmer’s governing Labour Party is trailing the populist Reform UK and the left-wing Green Party.

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 weakened 0.52% to 159.62 in response to the surge in oil prices and rise in the dollar.  Japan, a major importer of Middle Eastern oil, has been hit sharply, with gasoline prices reaching record highs in mid-March before government subsidies eased prices slightly.

However, business sentiment among Japan’s largest manufacturers increased in the first quarter per the Bank of Japan’s Tankan Survey. The sentiment index for large manufacturers edged up to 17, beating market estimates marking the highest level since Q4 2021. The uptick suggests Middle East conflict risks have yet to dent business morale. Elsewhere, Japan’s manufacturing PMI was revised slightly upward to 51.6 in March from a preliminary estimate of 51.4. Market implied odds continue to expect a rate hike from the BoJ in July, though are favorable to hikes in April and June.

Watch point: A confirmed April hike could pull USD/JPY closer to 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 fell 0.62% $0.6884, as the risk-sensitive currency reflected broader sentiment across markets. Major support for the Aussie lies at the 10-week low of $0.6834. Markets imply around a 73% chance the RBA will hike rates again at its next meeting on May 5, and expect the cash rate to land at 4.6% by year-end. Governor Michelle Bullock said the split in votes at the latest meeting was less a disagreement on policy direction but on timing. Analysts at HSBC now expect Australia’s economy to contract in the second quarter after two rate hikes this year, and higher fuel prices to weaken consumer spending.

 

TREASURY FUTURES

Yields moved higher across the curve in response to the jump in energy prices as markets await Friday’s nonfarm payrolls report. One-year inflation swaps remain elevated in response to the rise in energy prices with current pricing at 3.12%, a sharp increase from 2.27% before the onset of the conflict. Treasurys are likely to trade at the mercy of energy prices ahead of Friday’s payrolls report.

Tuesday’s JOLTS data reinforced the case for a Fed hold but ruled out the need for tightening. Total job openings were little changed in February, with a rate of 4.2%, down 0.2% from January’s revised 4.4%. On a YoY basis, openings are essentially flat, suggesting the broader trend of gradual cooling from 2022’s record highs has stabilized. However, a drop in hiring supports the case for looser policy in the second half of the year. Total hires fell −498,000 to 4.849 million, dropping the hires rate to 3.1%, the lowest level since April 2020 at the onset of the pandemic. On a YoY basis, hires are down 387,000 from February 2025. Layoffs and discharges rate at 1.1% remains historically low and does not yet signal an acute deterioration. Taken together, the labor market is softening but not breaking, though the weak hiring figures do present real risks to the Fed’s dual mandate but do support the case for Fed easing later in the year.

Watch point: Following Tuesday’s JOLTS data, upcoming nonfarm payroll figures will be watched for clues on when, not if, the Fed will cut rates later in the year. We look for the Fed to lower rates

The spread between the two- and 10-year yields is 52.10 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.833%.

 

 

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