Key Highlights

• First European ship exits the Strait of Hormuz since the war began.
• EU energy commissioner warns the energy shock will be “long-lasting.”
• U.S. is to apply 100% tariffs on patented pharmaceuticals, with no pricing concessions.

Chart of the Day

Equities led volume surge in Q1

^{Source: BNY}

Risk aversion generated a significant pick-up in cross-market volatility in March. With quarter-end complete, we can see that every single asset class saw material gains in transaction volumes, but with significant variation. Although FX markets saw significant turbulence as the “USD hedging” flow recorded throughout January and February was unwound, equity volumes far outpaced all other asset classes, registering a 35% gain in volumes to quarter-end. FX was close to 20% higher, while the increase in fixed income was nearer to 6%.

There are structural reasons behind these volume differences. For example, we expect fixed income volumes to be softer, given that much of the flows take place in the front end, where the base is high and hard to overcome, especially with constrained issuance. Realized volatility in equities is also higher, and some markets have seen exceptional moves, especially in Asia. However, it is important to highlight that these very moves were large because holdings were high in the first place, leaving them naturally predisposed to hedge unwinding. The headline-driven environment increased churn, and the far higher level of retail participation in equities contributed to the process.

We highlight that activity levels in FX and equites moved in lockstep during January, but that the market structure clearly diverged from February onward as risk appetite shifted. Initial difficulties in the tech/AI theme gave way to geopolitics, and there is no sign of any slowdown. We expect equities to remain dominant in activity, whereas FX will likely move passively to reflect hedging adjustments until central banks begin to diverge on rate paths as they manage growth versus inflation risks.

What's Changed?

Today is Good Friday, meaning markets are closed in much of the world. The U.S. has a partial trading session ahead, with jobs and service PMI announcements joining the war on today’s news agenda. Overnight, Asian shares rallied on reports of a plan to allow safe shipping through the Strait of Hormuz. MSCI Asia rose by almost 1%, while EMEA markets are closed. U.S. bond futures are closed for the U.K. holiday, while equity futures are down. USD is holding near to 100 on the index, down 0.2% for the week.

• Payments in CNY: Chinese cross-border payment companies (Alipay, WeChat, TenPay and UnionPay) saw gains overnight, as Iran is using CNY for the tolls to pass through the Strait of Hormuz. However, the broader equity market fell on more worries about growth and the war. CNY is up 0.1% against USD on the day and 0.5% on the week to 6.8795. Chinese services PMI fell 4.6 points to 52.1, suggesting softer consumer demand, which is adding to the need for more government stimulus. Meanwhile, the overnight repo rate fell 4bp to 1.22% – its lowest reading since August 2023.
• BoJ and JPY: The BoJ’s quarterly regional report is due for release on Monday, April 6, and will be the next key piece of information for JPY and BoJ rate hike expectations. BoJ officials sounded a hawkish note overnight, warning that higher fuel costs may lead to even higher inflation expectations. However, the effect of the war on mood and business sentiment is resulting in a marked slowdown in activity. Expectations of intervention should JPY break through 160 are lower, even as Finance Minister Satsuki Katayama voiced ongoing concerns about FX volatility and oil speculation.
• Food and politics: A 2.4% m/m rise in the UN March FAO food index has been linked to higher energy costs from the escalating conflict in the Middle East. The UN has warned that “farmers may reduce ​inputs, plant less or ​switch ⁠crops, leading to lower future yields and affecting food supply and prices ⁠for ​the rest of ​this year and next.” The risk that governments will need to subsidize food costs, driving large budget deficits, adds to financial concerns about rates and volatility.

Bottom line: The U.S. jobs report is expected to bounce back in March from the weather-hit February weakness. What seems clear is that no one is that worried about the data driving markets as long as oil prices and the duration of the war remain unknown. The problem for today is that even if there were to be a surprise, the depth of the market is lacking. Low volumes and lower confidence make risk aversion more likely than not. There is a growing sense globally that March’s rate volatility led by rethinking central bank policy was wrong. ECB Economist Philip Lane said it best, declaring that: “2026 is not 2022. We don’t have the strong pandemic reopening effects, the labor market is softer than it was then so we will be looking at all of these considerations: no paralysis, but no kind of pre-emption either.” The wait-and-see mentality of the current situation requires patience and more data – with today’s releases likely insufficient to rapidly reprice easing policies. 

What You Need to Know

The EU has warned that the Middle East conflict is likely to trigger a prolonged energy shock. Officials are preparing contingency measures including fuel rationing and further releases of strategic reserves as supply risks intensify. Energy commissioner Dan Jørgensen stated that while the bloc is not yet facing a full supply crisis, authorities are planning for worsening conditions, particularly in critical fuels such as diesel and jet fuel. Disruptions linked to the near-closure of the Strait of Hormuz and damage to Gulf infrastructure have already driven price increases and heightened volatility, with expectations of sustained upward pressure. Policymakers are assessing emergency tools and potential regulatory flexibility while aiming to preserve reserves for a crisis that could extend over a longer horizon. Euro Stoxx 50 -0.7% to 5693, EURUSD +0.026% to 1.1542, BBG AGG Euro Government High Grade EUR -3.7bp to 3.299%.

A French-linked container ship has exited the Strait of Hormuz for the first time since the Iran war severely restricted traffic through the chokepoint, signaling a tentative and highly controlled resumption of transit for select vessels. The CMA CGM Kribi, owned by the French shipping group, navigated close to Iran’s coastline along a pre-approved route and was later tracked off Muscat, with sources confirming the crossing. The strait, which handles roughly 20% of global oil and LNG flows, has been largely shut since late February, with Iran allowing limited passage for non-hostile or approved ships. A small number of other vessels signaling Omani ownership also transited, though widespread disruption persists amid signal interference and geopolitical risk. Brent +7.78% to 109.03, WTI +11.407% to 111.54, Omani crude +11.926% to 118.26, Dubai crude +11.535% to 117.251, HH natural gas -0.674% to 2.8, Dutch TTF natural gas +5.334% to 50.044.

China has released a 2026 action plan to boost service consumption, jointly issued by nine government departments, aimed at expanding supply and stimulating demand across the sector. The initiative focuses on improving service quality and meeting more diverse consumer needs, with targeted support for areas such as elderly care, childcare and household services, alongside upgrades to service infrastructure. The plan outlines 64 policy measures spanning traditional sectors including catering, tourism and healthcare, as well as emerging areas such as digital services and inbound consumption. Authorities are emphasizing coordinated efforts on both supply and demand, alongside greater openness, standard-setting and improvements to the consumption environment to support domestic demand growth. CSI 300 -0.85% to 4441, USDCNY -0.093% to 6.8787, 10y CGB -0.1bp to 1.815%.

The U.S. has announced a 100% tariff on patented pharmaceutical imports, while signaling that companies can avoid the levy by committing to domestic manufacturing or agreeing to pricing concessions with the government. The policy is designed to pressure drugmakers into relocating production to the U.S. and reducing perceived national security risks. Its immediate impact may be limited, however, as generic medicines are excluded and many large firms have already secured exemptions through prior agreements. Companies that pledge U.S. investment face reduced tariffs, with the possibility of elimination if pricing deals are reached. The measure is intended to drive further negotiations, though uncertainty remains over its practical scope and potential cost implications, particularly for smaller firms. S&P Mini -0.23% to 6607, DXY -0.052% to 99.976, 10y UST -1.4bp to 4.305%.

What We're Watching

U.S. March change in nonfarm payrolls forecast to rise to 65k vs. -92k, with manufacturing payrolls expected to drop -4k vs. -12 and average hourly earnings forecast at 0.3% m/m, 3.7% y/y vs. 0.4% m/m, 3.8% y/y prior, while average weekly hours are expected to be unchanged at 34.3 vs. 34.3.

U.S. March unemployment rate is expected to hold at 4.4% vs. 4.4%, but the labor force participation rate is expected to rise to 62.1% vs. 62%.

U.S. March final S&P Global Services PMI forecast to hold at 51.1 vs. flash estimate of 51.1, down from 51.7 in February 2026. Meanwhile, the U.S. March final S&P Global Composite PMI is expected at 51.4 vs. a flash estimate of 51.4 and 51.9 in February 2026.

What iFlow is Showing Us

Mood: iFlow Mood has edged closer to neutral at -0.018, with equity selling still outpacing demand for core sovereign bonds.

FX: Notable outflows in EUR, TRY and ZAR were offset by strong inflows into BRL and NOK. Within the G10, USD, AUD and GBP saw buying, while JPY, NZD and SEK were sold. Elsewhere, flows across EMEA and APAC were light and mixed.

FI: Strong demand for Eurozone and Chinese government bonds, followed by U.K. gilts, U.S. Treasurys and Japanese, Mexican and Hungarian government bonds. Selling pressure was concentrated in Malaysia and the Philippines, with Brazil and Türkiye also recording outflows.

Equities: Continued heavy selling across APAC, led by Indonesia, South Korea, the Philippines and Japan. In contrast, equities in Australia and Norway attracted strong inflows, alongside Czechia, Mexico and Peru.

Quotes of the Day

“It’s not about the bunny; it’s about the lamb.” – Ron Millburn

“For sin shall no longer be your master, because you are not under the law, but under grace.” – Romans 6:14

Economic Details

France’s industrial production fell 0.7% m/m in February, while manufacturing output was flat, following a 0.2% increase in January. The weakness was driven by a 3.2% decline in energy, extractive industries and water output due to unusually mild weather, while manufacturing showed offsetting movements across sectors. Food production fell by 0.8% m/m and transport equipment by 0.8%, while refining rose 1.8% and other industrial products increased by 0.4%. On a three-month basis, total industrial output rose by 1.1% y/y and manufacturing by 1.6%, supported by strong transport equipment growth of 8.9%. Construction output declined by 1.3% m/m and was down 2.7% y/y over the latest three-month period. CAC 40 -0.24% to 7962, EURUSD +0.026% to 1.1542, 10y OAT +0.8bp to 3.68%.

Türkiye’s CPI rose 30.87% y/y and 1.94% m/m in March, with the 12-month average at 32.82%. Price pressures were led by housing, water, electricity, gas and other fuels at 42.06% y/y, transportation at 34.35% and food and non-alcoholic beverages at 32.36%, which also contributed 8.25 percentage points to annual inflation. On a m/m basis, transport rose by 4.52%, housing by 1.91% and food by 1.80%, while clothing and footwear prices decreased. Core inflation excluding unprocessed food, energy, alcohol, tobacco and gold increased by 30.11% y/y and 1.45% m/m, indicating persistent underlying price pressures despite some moderation in monthly momentum. BI 100 -0.13% to 13035, USDTRY +0.293% to 44.5927, 10y TGB -14bp to 32.58%.

Türkiye’s domestic PPI rose 28.08% y/y and 2.30% m/m in March, with the annual average rate at 25.98%. By sector, prices were up 32.28% y/y in mining, 29.43% in manufacturing, 14.32% in electricity, gas and steam, and 38.25% in water supply, while main industrial group inflation was led by non-durable consumer goods at 31.95% and durable goods at 30.45%. On a m/m basis, manufacturing prices rose by 3.28% and energy by 4.65%, while electricity, gas and steam fell sharply (-7.51%). Intermediate goods rose by 2.07% and capital goods by0.68% m/m, indicating broad-based price pressures despite some divergence at sector level.

Japan’s services PMI slowed to 53.4 in March from 53.8 in February, indicating continued but softer m/m expansion in business activity and a twelfth consecutive month of growth. New orders increased for the 21st month in succession, but at the weakest pace since December, while employment growth was the slowest since October. Cost pressures intensified, with input prices rising at the fastest rate in nearly a year, linked partly to higher energy and raw material costs, although output price inflation moderated from a recent peak. Business confidence weakened significantly, falling to its lowest level since September 2020 amid uncertainty tied to the Middle East conflict, despite firms still expecting output growth over the year ahead. Nikkei +1.26% to 53123, USDJPY +0.007% to 159.61, 10y JGB 0bp to 2.386%.

China’s services PMI slowed to 52.1 in March from 56.7 in February, signaling continued but softer m/m expansion in activity while remaining above the long-run average. New business rose for a 39th consecutive month, though at the weakest pace since April 2025, driven primarily by domestic demand, while new export orders returned to contraction. Employment declined for a second straight month, with firms citing cost control and restructuring. Input cost inflation remained marginal and below trend, allowing firms to cut selling prices for the third time in four months. Business confidence remained positive over the 12-month horizon, supported by expectations of improved market conditions despite softer momentum and external demand uncertainty. CSI 300 -0.85% to 4441, USDCNY -0.093% to 6.8787, 10y CGB -0.1bp to 1.815%.