Middle Eastern War Chugs Onward and So Do Wide Day-to-Day Swings in Financial Markets – Currency Thoughts
Middle Eastern War Chugs Onward and So Do Wide Day-to-Day Swings in Financial Markets
March 24, 2026
The Middle Eastern war continues to play out on many different planes. The actual conflict has been fierce and continues to suck in a widening range of countries in the region. Considerable property damage is occurring, some that may take extended time to repair. Claimed casualties are running heavily in favor of the U.S. and Israel, but Vietnam conflict over a half century ago demonstrated the inaccuracy of such scores as a predictor of which side is really winning. One key fact looms high: almost not traffic is passing through the Strait of Hormuz,The propaganda of official remarks and media coverage have been all over the map on who is winning, when it might be over, and the likely post-war repercussions. President Trump claims negotiated progress toward an exit, while Iran denies the very existence of such talks. Another harsh reality is that global energy prices remain very elevated after undergoing one of the fastest upturns in recent memory.
Yet another dimension of the war has been the response of financial markets. In spite of the inconsistencies in the news from the war front, both day to day and intra-day, financial markets keep following the bouncing ball, which results in discontinuous momentum from day to day and intra-day. The United States may have lit the fire, but the dollar as the go-to refuge currency continues to benefit from developments that suggest an end to the violence and drop in the price of energy happening later rather than sooner. Equity and fixed income security markets have often moved in opposing directions in Asia from elsewhere on the same day of the week, this Tuesday being another example. With today’s release of preliminary purchasing manager survey findings for Euroland, Japan, India, Australia, Great Britain, and the United States, investors have received their most comprehensive picture yet of the immediate impact in March on economic activity, demand, inflationary pressure, business confidence, and supply chain disruptions, and the picture is not a pretty one.
Shortly past 7:00 EDT (11:00 GMT) this morning, the dollar showed modest overnight gains ranging up to 0.3%, aided by a report from the Wall Street Journal of Saudi Arabia and the United Arab Emirates joining the fight against Iran. After yesterday’s very large retreat in the price of oil, such had rebounded today by almost 3%. Stock markets in Asia closed up 2.8% in Hong Kong, 2.7% in South Korea, 1.9% in India, 1.8% in China and 1.4% in Japan but had made little net movement in Europe. U.S. stock futures were also flat. Ten-year sovereign debut yields rose two basis points in the U.S. instance but fell by seven bps in Australia, six bps in New Zealand, three bps in Japan and two basis points in Switzerland. Gold and silver prices were marginally firmer.
Fed Chairman Powell at last Wednesday’s press conference had cautioned against using the word stagflation to characterize the current situation, noting that particular word came into favor when high single-digit to double-digit price inflation was being experienced alongside much higher levels of job unemployment than found now. Nevertheless, in summarizing the early findings of several March PMI surveys, their compiler S&P Global did roll out the S word.
Euroland’s composite purchasing managers index of all private activities fell 1.4 points to a ten-month low of 51.0 despite a 45-month high scored by the manufacturing sector. Among only service sector businesses, the PMI dropped 1.8 points also to a ten-month low, which at 50.1 connotes effectively no growth at all. Input cost inflation accelerated very sharply, and so did supply delays. In contrast to what before the Middle East war had seemed an optimal environment for policymakers at the European Central Bank has suddenly been transformed into a challenging one, more akin to what the Fed is facing.
Within the euro area, the French and German preliminary PMI readings of 48.3 and 51.9 were at 5- and 3-month lows, 1.6 and 1.3 points below their February levels, and also a tad weaker than analysts were anticipating. Services, rather than manufacturing, took the early brunt of the Middle East war’s shock. Manufacturing, it would seem, benefited from businesses front-loading demand for inputs in anticipation of greater scarcity developing quickly.
The British composite PMI likewise dropped 2.7 index points to 51.0 and signaled the quickest month-to-month pickup in input price pressure since the aftermath of Black Wednesday in mid-September 1995 when a speculative run on sterling forced the U.K. to abandon the European Monetary System that narrowly confined allowable movements to between the currencies of countries aspiring to join the euro-using area.
Japan’s composite PMI in March fell one full point to a 3-month low of 52.9, and the services-only subindex also dropped one point to a 3-month low of 52.8. A bigger 1.6-point decline was experience by the manufacturing sector.
India’s composite PMI sank by 2.4 points to a 41-month low of 56.5 in March. Input price inflation was its fastest in almost four years. Manufacturing printed at a 54-month low of 53.8, while the services sector measure fell just 0.9 points to a 14-month low of 57.2.
Australia composite PMI swung from expansionary territory in February (52.4) to a sub-50 contractionary reading of 47.0 in March, which happens to reflect the deepest rate of contraction in 27 months. Services (46.6) were at a 28-month low, while manufacturing with a stagnant reading of 50.1 was only the lowest reading in five months.
There’s been a sharp full percentage point downward revision to fourth quarter 2025 U.S. productivity growth to 1.8% annualized, and an accompanying upward revision to unit labor cost growth from 1.3% reported earlier to an estimate of +2.4% in today’s report. Average 2025 annual productivity growth slowed from 3.0% in 2024 to 2.1% last year. That was the fourth annual gain of at least 2.0% in the five years following the Covid shock of 2020. At the same time, the return to 2.1% from 3.0% in 2024 indicates that the incremental boost from AI hasn’t yet been realized. Unit labor cost growth last quarter versus 3Q and expressed at an annualized rate was likewise revised sharply upward to 4.4% from 2.8%% estimated earlier. Compared to a year earlier, unit labor costs were up 2.4% in 4Q and 2.3% in 2025 as a whole.
Total Japanese consumer price inflation in February slowed to a four-year low of 1.3% in February. CPI excluding fresh food prices posted a 4-year low pace as well of 1.6%. These were 0.2 and 0.4 percentage points below the January results, but CPI excluding both food and energy slowed just 0.1 percentage point to 2.5% in February, and that result fails to embody this month’s very sharp rise in world energy prices.
South Korean producer price inflation accelerated last month by a half percentage point to a 19-month high of 2.4%.
A 2-month high in Icelandic PPI inflation of 5.5% last month followed 4.6% in January. In Finland, producer price inflation of 3.8% in February was its most elevated reading in three years.
Following a six-year low reading of 10.9% in January, Lebanese consumer price inflation rebounded to 12.3% in February. With the country now sucked into the Middle Eastern war, a further acceleration is to be expected in coming months. The inflation rate had been as higher as 268.8% back in April 2023. Yes, you read that right.
Consumer confidence this quarter improved two index points to a 5-quarter high in South Africa and this month to a three-month high in the Czech Republic, which also reported a 5-month high in business sentiment during March.
The monthly CBI survey of British distributive trades sank to a 71-month low this month of -52, which was more than ten index points lower than analyst expectations.
The Swiss current account surplus in 2025 totaled CHF 61.7 billion. Although almost 20% narrower than in 2024 due to very high U.S. tariffs part of the year, the surplus still amounted to about 4% of GDP.
In contrast to flat readings in futures trading around 7 AM this morning, U.S. stock indices are down 0.5% or more right after the opening bell. So much for Monday’s Trump-inspired reprieve. WTI oil has now rebounded 4.6% from Monday’s close.
The preliminary March U.S. purchasing manager survey results tell a similar story to others reported today. The composite and service sector indices each fell to 11-month lows of 51.4 and 51.1, while manufacturing in contrast ticked marginally higher to a 2-month high. Even more worrisome, input price and output inflation readings jumped to 10- and 43-month highs, respectively. The data suggest that first-quarter-growth is apt to undershoot 1.5% for a second straight quarter, while inflation could move back above 3.0% and conceivably approach even 4%.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Japanese CPI, presliminary March 2026 purchasing manager surveys, Revised U.S. productivity and unit labor costs last quarter
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