Global Economy & Markets, Weekly Roundup 17/03/26
Recent geopolitical flare ups are expected to keep central banks on hold with a hawkish communication bias
Global equity markets have edged lower (MSCI ACWI: -1.8% wow and -5.4% mtd) as the war in the Middle East and respective severe disruptions in the supply of major energy commodities continue, with any convincing signs of de-escalation still elusive.
According to the Israeli Defense Forces, the joint US – Israel military operations against Iran are set to continue for at least 3 more weeks. In that context, oil prices continue to trade above the $100/barrel threshold, up by c. +10% in the past week and by c. +45% from end-February just prior to the commencement of the war, to 3½-year highs (Brent: $103/barrel).
Inflation concerns due to higher energy costs and a repricing of monetary policy expectations towards a more hawkish stance continue to feed through to higher sovereign bond yields. The US Treasury 10-year yield was up by +15 bps wow (+32 bps mtd) to 4.29%. Its German Bund counterpart rose by +11 bps wow (+32 bps mtd) to 2.98%, the highest since July 2011.
In the current conundrum of simultaneous downside risks to economic growth and upside ones to inflation, changes in policy rates from major central banks are not anticipated as soon as in the current week. The upcoming meetings though will be closely monitored for an assessment of their first take on recent developments and of monetary policy prospects.
The Federal Reserve (March 18th) had already pointed in January to a pause in interest rate cuts (range 3.50%-3.75%). Latest economic data would also challenge the prospect of an imminent decision. On the one hand, job creation remains subdued and real GDP growth in Q4:2025 was substantially revised down, to a soft +0.7% qoq saar (+2.0% yoy) instead of +1.4%. On the other hand, headline (PCE) inflation was +2.8% yoy in January, with the core at +3.1% yoy, meaningfully above the 2% target and with risks to the upside following the spike in energy prices.
The meeting on Wednesday will be accompanied by the Federal Open Market Committee (FOMC) members updated economic projections. In December, the median FOMC assumption implied a range of 3.25% - 3.50% for the FFR at end-2026. The curve of investors’ expectations according to FFR futures pricing, has moved up by 40 bps since end-February, now broadly aligning with FOMC (but also pricing a c. ¼ chance of no cut by end-2026).
The ECB is also expected to stand pat on March 19th, with the Deposit Facility Rate (DFR) at 2.00%. The meeting will also be accompanied by the quarterly economic projections. Attention will also turn to the post-meeting statement and Press conference for elements on forward guidance. Recall that prior to the war in Iran, ECB officials had expressed their comfort with markets pricing in a rate hike as its next move, albeit well into 2027. According to overnight index swaps (OIS), investors’ expectations regarding the path of DFR have since moved up by c. +50 bps for end-2026.
The Bank of England had appeared at its latest meeting on February 5th to be close to another cut in the Bank Rate, with a marginal majority of 5 members advocating in favor of a stable rate versus 4 who voted for a -25 bps cut. Nevertheless, in the current environment, the BoE is anticipated to stand pat on March 19th. OIS pricing now suggests a +25 bps hike by end-2026 instead (as per end-February) of -50 bps cumulative cuts.
Global equity markets have edged lower (MSCI ACWI: -1.8% wow and -5.4% mtd) as the war in the Middle East and respective severe disruptions in the supply of major energy commodities continue, with any convincing signs of de-escalation still elusive.
According to the Israeli Defense Forces, the joint US – Israel military operations against Iran are set to continue for at least 3 more weeks. In that context, oil prices continue to trade above the $100/barrel threshold, up by c. +10% in the past week and by c. +45% from end-February just prior to the commencement of the war, to 3½-year highs (Brent: $103/barrel).
Inflation concerns due to higher energy costs and a repricing of monetary policy expectations towards a more hawkish stance continue to feed through to higher sovereign bond yields. The US Treasury 10-year yield was up by +15 bps wow (+32 bps mtd) to 4.29%. Its German Bund counterpart rose by +11 bps wow (+32 bps mtd) to 2.98%, the highest since July 2011.
In the current conundrum of simultaneous downside risks to economic growth and upside ones to inflation, changes in policy rates from major central banks are not anticipated as soon as in the current week. The upcoming meetings though will be closely monitored for an assessment of their first take on recent developments and of monetary policy prospects.
The Federal Reserve (March 18th) had already pointed in January to a pause in interest rate cuts (range 3.50%-3.75%). Latest economic data would also challenge the prospect of an imminent decision. On the one hand, job creation remains subdued and real GDP growth in Q4:2025 was substantially revised down, to a soft +0.7% qoq saar (+2.0% yoy) instead of +1.4%. On the other hand, headline (PCE) inflation was +2.8% yoy in January, with the core at +3.1% yoy, meaningfully above the 2% target and with risks to the upside following the spike in energy prices.
The meeting on Wednesday will be accompanied by the Federal Open Market Committee (FOMC) members updated economic projections. In December, the median FOMC assumption implied a range of 3.25% - 3.50% for the FFR at end-2026. The curve of investors’ expectations according to FFR futures pricing, has moved up by 40 bps since end-February, now broadly aligning with FOMC (but also pricing a c. ¼ chance of no cut by end-2026).
The ECB is also expected to stand pat on March 19th, with the Deposit Facility Rate (DFR) at 2.00%. The meeting will also be accompanied by the quarterly economic projections. Attention will also turn to the post-meeting statement and Press conference for elements on forward guidance. Recall that prior to the war in Iran, ECB officials had expressed their comfort with markets pricing in a rate hike as its next move, albeit well into 2027. According to overnight index swaps (OIS), investors’ expectations regarding the path of DFR have since moved up by c. +50 bps for end-2026.
The Bank of England had appeared at its latest meeting on February 5th to be close to another cut in the Bank Rate, with a marginal majority of 5 members advocating in favor of a stable rate versus 4 who voted for a -25 bps cut. Nevertheless, in the current environment, the BoE is anticipated to stand pat on March 19th. OIS pricing now suggests a +25 bps hike by end-2026 instead (as per end-February) of -50 bps cumulative cuts.