Key Highlights

• Trump: No deal with Iran except unconditional surrender.
• Energy surge reshapes cross-asset correlations and safe-haven demand.
• Conflict duration drives oil, rates expectations, and equity rotation.
• Inflation risks complicate central bank paths amid weakening growth data.

What you need to know

Clocks in North America sprang forward this weekend. The shift brings U.S. and EU markets closer in time, adding to morning liquidity until Europe moves its clocks in two weeks. Time is the key consideration for risk globally.

March continues to roar, with investors rethinking safe havens and allocations amid the “Epic Fury” military operation in the Middle East. The question around the duration of the conflict drives expectations across all markets, starting with oil.

For the last week, investors shunned bonds amid fears an energy shock could reduce interest rate cuts in the U.S. and U.K. and raise rate-hike risks in the EU. Gold lost 3% on the week, the first drop in five weeks, as the USD bounced 1.7%, the most in four years. Oil rose by more than 20% and natural gas by more than 50%, prompting wider stagflation concerns across the world.

Equities have moved to a defensive rotation trade, with energy and materials leading. Notably, the iFlow Mood index peaked a week before the conflict and is back to neutral territory today, following 76 days of extreme risk sentiment. The reversal in the index has yet to move into negative territory, suggesting a sanguine consensus on the duration of the conflict. The risk of an extended supply shock around the world is not priced in yet. 

EXHIBIT #1: USD AND THE GOLD-OIL PRICE RATIO SINCE 2020

_{Source: BNY, Bloomberg}

Our take: What has changed most is the relationship of oil to gold to the dollar. The USD touched highs in 2022 after Russia invaded Ukraine and energy prices were the main worry for Europe. The current moves in energy and the USD are matching the 2022 experience.

Our risk sentiment index reflects this as well, with iFlow Mood peaking two weeks before the conflict (99th percentile) and now back to neutral territory (64th percentile). Investors are still watching gold as an alternative to fiat currencies, but there is notably less momentum and demand.

There is a sea shift in oil/gold and the USD in 2025 – the circled zone in Exhibit #1. The role of tariffs and the weaker USD in 2025 stands out as a correlation break that has ramifications across all markets – bonds, stocks and other commodities.

Forward look: The pressure for markets will be to return the oil-to-gold correlation back to trend, suggesting sharply higher oil prices or lower gold prices. Most investors are motivated to treat the current conflict as noise and focus on the underlying economic trends. The U.S. jobs report has changed some of the thinking about the FOMC rate cuts – moving from one to two cuts again. The role of rates in driving the USD will be watched closely into the week ahead given CPI and ongoing worries about stagflation.

EXHIBIT #2: U.S. TRADE/TRANSPORT FLOWS VS. SHANGHAI FREIGHT INDEX

_{Source: BNY, Bloomberg}

Our take: Shipping insurance has been a key part of the past week’s focus on supply-chain disruptions. The Shanghai Export Containerized Freight Index is a useful guide here, and it is interesting to compare it against U.S. trade/transport sector equity flows. Up until this year, the relationship was linked to tariffs and trade policy. The current conflicts from Venezuela to Iran have changed the relationship. The focus is on how much U.S. trade will change around the energy shock and the new 15% tariff.

Forward look: The key question for investors into the rest of the month is how supply chains are going to be changed again and what this means for inflation and growth. The cost of energy, insurance and new shipping routes are part of the modeling, but the sentiment shift in shares and investments will also play a role. The transmission of the current conflict into the U.S. and world economy will start with oil, extend to financial conditions, and grind on through the uncertainty it generates, leaving markets more volatile and less liquid. 

What we are watching

North America: Financial conditions and CPI on watch

EXHIBIT #3: U.S. CPI AND PCE PRICE INDEX

_{Source: BNY, Bloomberg}

Our take: After a week to remember, this coming week brings more opportunity for market volatility. We expect the war in the Middle East to continue and will be watching for further impacts on energy and equity prices as well as the dollar and interest rates. In addition, last Friday delivered a brutal U.S. jobs report, and this week promises more data across a range of indicators.

Forward look: Two more inflation prints arrive this week, with the February CPI (Wednesday) and the January PCE deflator (Friday). Inflation has been running hotter in recent months, complicating the Fed’s position as it also confronts an oil shock and a seemingly weaker jobs market. The trade balance, which has deteriorated significantly, is released on Thursday, as are some crucial housing indicators. The second print of Q4 GDP appears on Friday, alongside the University of Michigan consumer sentiment gauge and additional jobs data from JOLTS. 

The Fed is in a public blackout period this week, with the FOMC scheduled for Wednesday, March 18. Most recent comments from Fed speakers have indicated a shift away from a dovish position, thanks both to the recent inflation disappointments as well as the oil shock. However, weaker jobs data last week might lead to a dovish dissent or two at the meeting, one that also features the quarterly Summary of Economic Projections (aka the dots).

EMEA: Communicating policy pivots ahead of blackout period is essential

EXHIBIT #4: EUROZONE INFLATION EXPECTATIONS

_{Source: European Central Bank}

Our take: The relevance of backward-looking data in the current environment is fading quickly, as the Middle East conflict shows little sign of de-escalation and supply chain fears look set to intensify across Europe. Although Europe’s direct energy imports from the Middle East are not decisive for supply, the price impact will be potentially profound if the region ceases exports soon, as Qatar’s energy minister recently warned.

Europe is far more resilient than in 2022 to 2023. We continue to stress that the direct inflation impact is more muted through the demand channel, as there is no equivalent of a post-COVID demand expansion, which exacerbated price pressures.

However, the very memory of that episode means inflation expectations can rapidly become unanchored. The European Central Bank (ECB) expectations survey (Exhibit #4) highlights that, since 2021, the biggest divergence in the individual components has been the backward-looking figure, while one- and three-year inflation expectations have re-converged.

This means that the “memory” of inflation is far stronger than what households are currently experiencing, and the freshness of such memories suggests that forward-looking expectations can spiral higher very quickly.

Consequently, communication from the ECB and national governments has to be as balanced as possible. The upcoming week is the last period before the ECB communications blackout begins on Thursday. Since the conflict began, the general consensus among Governing Council members is one of “don’t panic.” However, ECB Vice President Luis de Guindos has all but admitted that underlying assumptions for energy prices need to shift. The EUR is also slightly softer, which means the marginal impact from pass-throughs that can help contain price increases is extremely limited, and may even fall further if markets continue to shift to the dollar. At least, ECB officials probably should not “push back” against market pricing of a hike, which in itself can serve as a form of restraint.

Our biggest concern is how governments behave. If energy prices do surge further and reach $100/bbl or an equivalent level, as some officials have warned, pressure on governments to adopt some form of inflation shielding will grow and heavily depress real rates – risking a repeat of some of policy imbalances seen in 2022 to 2023.

Forward look: Turkey’s central bank decision on Thursday will serve as another test case of how EMEA economies close to the conflict react. Markets have shifted back to no cut, the bare minimum given that Turkey’s exposures to the conflict are far higher than Poland’s, which opted to press on with a cut despite uncertainty over energy prices. A few days after the decision, a National Bank of Poland member admitted that the conflict “lowers the space for rate cuts.” Given Turkey’s inflation dynamics are far more challenging, vigilance will be far stronger, and we would not even rule out discussion of a hike.

Turkey’s fiscal reaction is more telling: a tax mechanism is already in place to cushion any gains in prices, whereby a special consumption tax on fuel will be reduced by up to 75% of the increase, with a clear stipulation that the same tax will need to rise again if energy prices reverse. Fiscal neutrality is difficult to achieve, but clear communication that subsidies or protective measures are temporary is paramount.

Otherwise, the data calendar is light in Europe, and we continue to see market performance as fully event-driven.

APAC: China credit and inflation, regional exports, and Japan earnings

EXHIBIT #5: CHINA CREDIT GROWTH AND INFLATION

_{Source: BNY}

Our take: Upcoming Asian economic releases will be closely scrutinized for clearer signals on growth momentum, inflation dynamics and policy trajectories across the region.

In China, February CPI and PPI data, alongside credit aggregates – including new yuan loans, total social financing and M2 – will be pivotal in assessing lingering deflation risks and the strength of the credit impulse.

China trade data will provide further insight into external demand conditions and supply chain resilience, particularly in technology exports and trade flows with ASEAN economies.

In North Asia, South Korea’s Q4 GDP and export figures for the first 1 to 10 days of March, together with Taiwan’s February export data, will serve as timely gauges of the semiconductor-driven recovery. Sustained strength in tech-related shipments would reinforce the earnings outlook and remain supportive for regional equity markets.

Japan’s real cash earnings, PPI and the Business Survey Index (BSI) will be critical in evaluating the durability of the wage-price cycle amid ongoing policy normalization by the Bank of Japan. Firmer wage growth and upstream price pressures would strengthen the case for continued normalization.

In India, February CPI will be closely watched given the recent upward momentum in inflation and the surge in crude oil prices. While the recently announced $2.6bn uranium deal with Canada and the shared ambition to lift bilateral trade to $50bn by 2030 are structurally positive, external and fiscal vulnerabilities remain a constraint. Notably, the current account deficit widened to 1.3% of GDP in Q4 2025, from –1.1% of GDP in Q4 2024, continuing to weigh on INR sentiment.

In the Antipodean region, Australia’s inflation expectations and business confidence indicators will be monitored for confirmation of persistent price pressures ahead of the Reserve Bank of Australia’s mid-March meeting, with implications for the near-term policy bias and AUD direction.

Forward look: Near-term market direction is likely to be shaped less by domestic fundamentals and more by the evolving situation in the Middle East, particularly through its impact on energy prices and broader risk sentiment. The sharp rise in crude oil and LNG prices presents clear balance-of-payments challenges for net energy importers – most notably Japan, South Korea, India, Thailand and the Philippines. These economies, already among the weakest currency performers since the escalation of the Iran conflict, remain vulnerable to a sustained terms-of-trade shock.

Should elevated oil prices coincide with continued currency depreciation, second-round inflationary effects could emerge. For now, however, we expect the inflation impulse to remain manageable given the still-subdued starting point. Headline inflation remains low in Thailand (–0.66% y/y), China (0.2% y/y), and Taiwan (0.69% y/y), suggesting that a moderate uptick in price pressures would be tolerable and, in some cases, even welcome from a policy perspective.

At the same time, prolonged geopolitical uncertainty risks extending the current phase of deleveraging. In other words, the winners will be vulnerable to profit-taking activities. South Korea, Taiwan and Thailand – among the strongest equity performers year to date – experienced particularly heavy selling last week. Consistent with this, iFlow data indicate sizable equity outflows across EM APAC. While we remain structurally constructive on the region’s AI-driven and export-led growth themes, the near-term balance of risks is clearly skewed to the downside. Following the recent bout of heavy liquidation and capitulation, any normalization in capital flows back into APAC is likely to be gradual rather than immediate.

Bottom line

The week ahead will test whether markets continue to treat the current conflict as a contained shock or begin to price a more durable supply disruption.

Oil remains the transmission channel into inflation expectations, rates and currency markets, with the dollar’s resurgence echoing the 2022 energy crisis playbook. Yet gold’s fading momentum and still-neutral risk sentiment suggest investors are not fully positioned for a prolonged stagflationary impulse. That complacency may prove fragile, but the Trump administration’s willingness to go “all in” on stabilizing markets has a long record dating back to “Liberation Day.”

Incoming CPI and PCE data in the U.S., alongside evolving energy dynamics, will be pivotal for rate expectations and the USD’s trajectory. In Europe, communication discipline from policymakers will be critical to prevent inflation expectations from reanchoring higher. Across APAC, external balances and currency stability will hinge on oil’s path.

For risk managers, correlation stability is the key variable. A disorderly adjustment, whether via sharply higher oil or tighter financial conditions, would challenge consensus positioning and liquidity assumptions. Until clarity on conflict duration emerges, portfolios will emphasize resilience: disciplined exposure to energy-sensitive assets, vigilance on inflation breakevens, and flexibility around duration as volatility remains elevated.

Calendar for March 9 – March 13

Central bank decisions

Turkey, Central Bank of the Republic of Turkey (TCMB) (Thursday, March 12): The TCMB is expected to keep rates on hold at 37%. Like much of the region, inflation forecasts, assumptions and expectations are likely to change dramatically, and Turkey is particularly exposed on many fronts. The government is already discussing the deployment of energy-related measures without fiscal expansion through taxation offsets, but the TCMB will need to adopt a zero-tolerance stance toward managing inflation expectations until clarity over the conflict emerges.

Peru, Central Reserve Bank of Peru (BCRP) (Thursday, March 12): The current market environment will likely challenge Latin American currencies due to general risk aversion and reduced holdings, even though the region is generally shielded from any direct impact from the Middle East conflict for now. Nonetheless, supply shocks can reverberate globally very quickly, and the broader need to monitor financial conditions will remain in place, especially if the Fed begins to signal a pivot away from its prior stance due to new developments. Holding rates at 4.25%, already low by regional standards, will be the most prudent approach.

_{Source: BNY}

_{Source: BNY}

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