Despite A Difficult March and Conflicting War News, Financial Markets Ending Month on Up-Note – Currency Thoughts
Despite A Difficult March and Conflicting War News, Financial Markets Ending Month on Up-Note
March 31, 2026
Equity markets in the Pacific Rim, a region particularly dependent on Middle Eastern energy, plunged in March by 14.4% in Indonesia, 11.8% in South Korea, 11.5% in India, 11.2% in Japan, 10.4% in Taiwan, 7.8% in Australia, 6.5% in China and 6.0% in Hong Kong.
Although the Strait of Hormuz remains closed to most traffic, President Trump remains hopeful that Operation Epic Fury will likely end soon and floated the idea that U.S. forces may pull out even if the Strait closure isn’t rectified. A different perspective on the progress of the Middle Eastern conflict has been highlighted by the sequence of cover stories in The Economist over the past four weeks: A War Without a Strategy, then An Attack on the World Economy, followed by Operation Blind Fury, and finally Advantage Iran. The price per barrel of West Texas intermediate oil got as high as $106.86 overnight, and U.S. gas prices touched $5.00 for the first time since consumer price inflation was cresting in the summer of 2022. WTI oil subsequently settled back and currently shows a net advance of just 0.2% from Monday’s close, albeit holding onto a surge of just under 54% when compared to its end-February level.
As a consistent barometer of investor concern about the Middle Eastern war, the dollar experience a strong March but is today mostly 0.1-0.4% softer against other major currencies. Ten-year sovereign debt yields have slipped today by four basis points in the United states, three bps in Great Britain, two bps in Japan, France, Italy and Spain and a single basis point in Switzerland and Germany. Less than a half hour before the U.S. opening bell, the four major indices in futures trading had advanced by 1.1% to 1.4%. Gains in the major European stock markets also are hovering around 1%. Today’s precious metal advances included 3.9% so far in the case of silver and 1.3% for gold. Bitcoin is little changed on the day but 1.6% firmer than at end-February.
Before the war’s outbreak, U.S. house prices in January, a particularly harsh month for the Northeast and other places, posted month-on-month changes of -0.1% in the Case-Shiller index and +0.1% in the FHFA measure. Their respective year-on-year gains of 1.2% and 1.6% were the smallest in 31 months and 2 months.
Consumer prices in the euro area during March shot up 1.2% month-on-month, lifted by a 6.8% increase in energy and resulting in a 0.6 percentage point acceleration of CPI inflation to a 14-month high of 2.5%. The 12-month change in energy costs swung from -3.1% in February to +4.9% this month, outweighing decelerations in services (3.2% from 3.4%), food (2.4% from 2.5%), and non-energy industrial goods to 0.5% from 0.7%. Core inflation that excludes food and energy slowed to a 3-month low of 2.3%.
Within the euro area, German import prices rose in February by a greater-than-anticipated 0.5%, resulting in a 12-month decline of 2.3% for the third month in a row. German retail sales volume sank in 1.1% in January and another 0.6% in February, resulting in a February year-on-year uptick of just 0.7% versus 1.8% in December and a 3-year high of 4.4% in February 2025.
French household spending in February dropped 1.4% on month and 1.5% on year. French CPI inflation of 1.7% in March was the most in 14 months, nearly double February’s 0.9% reading, and well above January’s 61-month low of 0.3%. French producer prices in February slid 0.2% on month and fell 2.4% on year (their 26th on-year drop in the past 31 months).
Italian CPI inflation rose to an 8-month high of 1.7%, while Spain’s current account deficit of EUR 48.1 billion in the first two months of 2026 was EUR 2 billion narrower than a year earlier.
Japan, as is custom, released several economic data on this final business day of the month. January’s encouraging 4.1% leap in retail sales was flanked by 2.0% declines in December and February. Retail sales were 0.2% lower in February than a year earlier, while industrial production posted only a 0.3% 12-month rate of rise, similar to its average 0.3% drop in 2025. Consumer price inflation in Tokyo of 1.4% was the lowest in four years. Excluding fresh food, Japan’s favored core inflation measure slid to a 23-month low of 0.3%. When excluding energy as well as food, core inflation in Tokyo of 2.3% was at a one-year low in March. These declines happened in spite of a swing in the energy component from a 12-month 9.2% drop in February to a 7.5% on-year advance in March. Yet another Japanese data release today was the news of a 0.1 percentage point dip in unemployment to 2.6% in February, marking the sixth such reading in the past seven reported months.
Several British economic indicators also were reported today.
- A 2-month high in shop price inflation of 1.2% in February nonetheless fell short of what analysts had been predicting.
- The Nationwide house price index jumped 0.9% in March, lifting its 12-month rate of rise to a 5-month high of 2.2%.
- The U.K. GBP 18.4 billion current account deficit last quarter was about a fifth smaller than expected and equivalent to roughly 2.4% of GDP.
- Real GDP posted an unrevised quarterly 0.1% uptick in the final quarter of 2025, same also as in 3Q. However on-year growth in 4Q was revised marginally lower to 1.0%, which was below the 2.0% on-year reading in the final quarter of 2024 and last year’s average growth rate of 1.4%.
In central banking news from yesterday, the Bank of Israel‘s policy interest rate was left unchanged as expected at 4.0%. There had been a 25-basis point cut as recently as January, and the subsequent war against Iran is associated with upward inflation risks that are being prioritized over the weaker growth implications of the conflict. Published minutes from this month’s review of Australian monetary policy that resulted in an increase of the Reserve Bank of Australia’s Official Cash Rate by 25 basis points to 4.10% observe that domestic pressures behind higher-than-hoped inflation lately are being also affected by the Middle Eastern war. Policy now faces two-sided risk. They agreed that it was not possible to predict the future path for the cash rate target with any confidence, given the high degree of uncertainty around the breadth and duration of the current conflict in the Middle East.” One takeaway by analysts from yesterday,s speech by Federal Reserve Chairman Powell was the assertion that longer-term U.S. inflation expectations appear to be still anchored. Expectations, rather than real time price data may hold the key to the central bank’s rate changes, if any, during 2026.
Copyright 2026, Larry Greenberg. All rights reserved.
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