Private Credit, Oil Worries Weigh on Equities

MACRO FRAME

Renewed geopolitical tensions add another layer of uncertainty to global markets, while February’s nonfarm payrolls report keeps the case for a summer Fed rate cut intact but offers limited clarity on the extent of easing.

STOCK INDEX FUTURES

Equity indexes are lower as the conflict in Iran continues to weigh on sentiment, while concerns surrounding private credit markets and weakening demand for enterprise software add pressure to financial and software shares. Brent crude topped $100 and WTI futures climbed to around $95 per barrel, overnight as concerns over a prolonged conflict in Iran overshadowed the release of oil strategic oil reserves by major economies.

JP Morgan announced they would be restricting lending to private credit providers after the bank marked down the value of several loans in its portfolio. The move reflects broader industry jitters across private credit, which have intensified in recent weeks due to heightened withdrawal requests from investors. Investor anxiety around private credit exposure to software companies and potential AI disruption has drawn scrutiny from investors, as many direct lenders hold significant loans tied to the sector.  The rush for liquidity has squeezed several large industry names and forced them to limit redemptions for key funds, pressuring financial sector shares.

February’s CPI print did little to change the outlook for the Fed with inflation holding steady at 2.4%. The print came before the Middle East conflict, and reflected cooling core prices and slowing shelter inflation. However, the subsequent surge in energy prices introduces new upside risks to inflation that could delay the timing of rate cuts.

Weekly initial jobless claims came in at 213,000, just under the four-week MA of 212,000.

Elsewhere on the data front, US housing starts rose 7.2% month-over-month to a seasonally adjusted annual rate of 1.487 million in January, up from a downwardly revised 1.387 million in December and above forecasts of 1.35 million. This marked the third consecutive monthly increase, lifting starts to their highest level in over a year. Trade data showed the US trade deficit narrowed to $54.5 billion in January from $72.9 billion in December. Exports rose 5.5% to a record high of $302.1 billion, led by sales of nonmonetary gold, computers, civilian aircraft, and computer accessories. Meanwhile, imports declined 0.7%

Watch point: Further escalation in the Middle East or a sustained move in oil above $90 could deepen the current risk-off tone across equities

CURRENCY FUTURES

US DOLLAR: The USD Index rose 0.27% to 99.494, nearing 2026 highs. Rising energy prices continue to provide the greenback with strong tailwinds as upside inflation risks have limited market bets on the amount of monetary easing from the Fed this year. February’s CPI report showed inflation pressures remained contained prior to the recent escalation in the Middle East. While that data supports the case for Fed easing later this year, the recent surge in oil prices has complicated the outlook for policy as upside risks to energy prices remain elevated and are likely to make their way into the broader economy if the rise in prices is sustained.

Near-term price action is likely to remain headline-driven; any signs of de-escalation could weigh on the dollar as safe-haven demand fades, while continued fighting and tighter energy markets would likely reinforce dollar strength through higher inflation expectations.

Watch point: Dollar direction is likely to remain driven by geopolitical headlines and energy markets in the near term.

EURO: The euro slipped 0.25% to $1.1539, with no fresh data out of the eurozone overnight, markets continued focus on the conflict in Iran and the subsequent rise in energy prices. Oil prices resumed their rally despite the release of oil from strategic reserves from several countries, underscoring the severity of the supply disruption and continuing to weigh on the euro. Demand for dollar liquidity has also continues to pressure the currency.

On the monetary policy front, market pricing for a rate hike from the European Central Bank has now shifted earlier in the year to July, after  previously pricing a hike at the September meeting. Macro conditions remain favorable to the euro – apart from the conflict in the Middle East. Labor market conditions remain firm, with the unemployment rate falling to a record low of 6.1% in January, while inflation data has surprised to the upside, with headline inflation rising to 1.9% year-over-year and core inflation reaching 2.4%, both above forecasts.

Watch point: Euro direction will likely remain sensitive to global risk sentiment and dollar dynamics.

BRITISH POUND: Sterling is 0.26% lower at $1.3379. GBP continues to be pressured from higher energy prices, which in turn have nullified expectations for easing from the Bank of England this year. Money market pricing shows no expected change in the BoE’s policy rate this year, as higher energy prices have presented upside risks to inflation. The UK is a net-energy importer and is vulnerable to supply shocks. Inflation in the country currently stands at 3%, among one of the highest in the G7. Markets will look ahead to GDP data for January out early Friday, which is expected to show the economy expand 0.2%.

Beyond the hit from higher oil prices, the pound has also been weakened by subdued economic data and domestic political turbulence in recent weeks. The May local elections present a renewed domestic risk for the pound in political uncertainty, with focus on Prime Minister Starmer’s Labour party potentially facing a leadership crisis if the party cedes too many votes.

Watch point: Policy decisions from the Bank of England are now on hold with renewed geopolitical risks and a potential sustained rise in energy prices.

JAPANESE YEN: The yen is little changed against the dollar at 158.85, though remaining under pressure from surging energy prices. Japan’s Business Survey Index for large manufacturers fell to 3.8 in Q1 2026 from 4.7 in Q4 but remained in positive territory for a third consecutive quarter. The reading came in below market expectations of 5.5, as businesses grapple with the impact of the Middle East conflict and surging oil prices. That heightened concerns over renewed inflationary pressures and a resulting economic hit to business, per survey respondents. The survey, which tracks sentiment among major manufacturers, remains a key gauge of Japan’s industrial outlook in an economy where manufacturing plays a central role.

Money markets continue to price in a July rate hike from the BoJ, while also favorable to a cut in June as well.

Watch point: A move beyond the ¥160 range would likely intensify intervention rhetoric, while sustained energy-driven inflation could keep tightening expectations intact despite political pressure.

AUSTRALIAN DOLLAR: The Aussie slipped 0.25% to $0.7134, as flows to the dollar pressured the currency. Australia’s consumer inflation expectations rose to 5.2% in March from 5.0% in February, marking the highest level since July 2023, ahead of the Reserve Bank of Australia’s policy meeting next week. Markets currently imply around a 70% probability of a rate hike at the bank’s meeting, and are pricing another hike by August.

Stronger-than-expected growth data and inflation readings have supported a tightening bias from the RBA. Currently, the headline inflation sits at 3.8% and is expected to surpass 4% as petrol prices continue to climb, while core inflation remains elevated at 3.4%, well above the RBA’s 2–3% target band.

Watch point: Wage figures, capacity utilization, PMI readings, and other signals on economic momentum will dictate market sentiment over future timing expectations.

TREASURY FUTURES

Treasury yields are higher following as oil prices resumed their rally, heightening upside risks to inflation and narrowing odds for easing in monetary policy from the Fed. Money market pricing now shows only one expected rate cut this year at the Fed’s December meeting, pricing in a total of 29 bps of easing by year end. February’s CPI print showed price pressures remained relatively contained ahead of the escalation in the Middle East, which has fueled speculation that the reading may not prove too important as a gauge on prices due to the conflict. Oil will likely continue to be the main driver for sentiment and yields, with the risk of a prolonged conflict likely to further shape Fed policy toward a halt in policy for the remainder of the year.

Headline CPI rose 0.3% on the month and 2.4% year-over-year, while core prices increased 0.2% on the month and 2.5% annually, indicating that the broader disinflation trend remained largely intact before the recent rise in energy prices.

Watch point: A weak headline NFP figure supports the case for Fed easing this year, but questions as to how slow labor demand is cooling will likely determine further policy at the Fed, while a prolonged conflict in Iran is likely to limit the amount of easing in policy.

The spread between the two- and 10-year yields is 56.10 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.678%.

 

 

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