9 min readWeekly recap
US stocks fell for a fifth straight week, weighed down by persistent geopolitical tensions and elevated oil prices, which have intensified stagflation concerns. The S&P 500 fell 2.1% last week, while the Nasdaq dropped 3.2% — its worst weekly performance since last April’s “Liberation Day” sell-off. The tech-heavy index has now closed more than 10% below its record high, putting it firmly in correction territory.
As we move towards month-end, the S&P 500 is down 5.8% in March, the Nasdaq has fallen 5.5%, and the Dow Jones is down 6% on the month.
The US dollar also strengthened last week, rising 0.4%, and is now up 2.4% in March — on track for its strongest monthly performance since July last year, when it rose 3.4%. The USD is tracking treasury yields higher and benefits from safe-haven flows.
What to watch this week:
The coming week is shortened by the Easter holiday, with both the US and UK markets closed on Friday.
Geopolitical tensions remain the key market driver
Markets remain highly headline-driven, likely keeping volatility elevated.
Last week, investors had to navigate conflicting reports about whether the US and Iran were moving toward de-escalation. Early optimism about possible de-escalation helped lift sentiment, but it faded later in the week as tensions appeared to rise again.
The US is reportedly sending 10,000 additional troops to the region, along with another aircraft carrier, raising fears of further escalation rather than calming the situation. The Strait of Hormuz remains largely closed to vessels linked to the US and Israel, with only a handful of ships now passing through each day compared with roughly 200 per day before the conflict. Attention is also likely to turn increasingly towards Bab el-Mandeb, another key energy chokepoint off the coast of Yemen.
As the Iran-backed Yemen Houthis become more involved in the conflict, any disruption to this chokepoint could add further pressure to global energy markets. In short, geopolitics remains the single biggest driver of market sentiment — particularly for oil, inflation expectations, and risk appetite.
Eurozone inflation (Tuesday)
Eurozone inflation will be closely watched this week as investors assess how much of the recent energy shock is now feeding into consumer prices. Last month, eurozone inflation rose to 1.9% year-on-year from January’s 16-month low of 1.7%, while core inflation increased to 2.4%. At its last meeting, the ECB left interest rates unchanged at 2% but raised its inflation forecasts, citing risks linked to the Middle East conflict.
Policymakers also reiterated their commitment to keeping inflation anchored around the 2% target over the medium term. Friday’s data from Spain showed inflation jumping sharply to 3.3% in March from 2.3% in February. Similar moves higher are now expected across the wider eurozone as the inflationary impact of the Iran conflict starts to feed through. Expectations are for EZ CPI to jump to 2.8%.
Markets are currently pricing in three ECB rate hikes this year. A hotter-than-expected inflation reading could reinforce that view, pulling EU stocks lower, while supporting the EUR/USD.
Chinese PMIs (Tuesday)
China’s official NBS manufacturing and non-manufacturing PMIs, due on Tuesday, will offer an early read on whether activity is stabilising in the world’s second-largest economy. Markets expect manufacturing PMI to improve to around 50 from 49 in February, potentially returning to expansion territory after spending much of the past year below the key 50 threshold.
A move back above 50 would be an encouraging sign, particularly after Lunar New Year distortions. That said, investors will also be watching whether the official data continues to diverge from the more export-focused Caixin surveys. New orders, export demand, and pricing components will be key, especially as rising energy costs begin to impact Asian supply chains as well.
The non-manufacturing PMI is expected to rise modestly to 49.9 from 49.5. This remains in contraction. Weaker data than expected could put pressure on the Aussie (AUD/USD)– often considered a proxy for China.
US retail sales (Wednesday)
The health of the US consumer remains another important theme. Bank of America’s consumer checkpoint data for February showed spending growth accelerating to 3.2% year-on-year — the strongest pace in three years. That suggests consumer demand has remained relatively resilient, helped in part by larger tax refunds and still-healthy household finances.
However, with labour market concerns building and energy costs rising, markets will want to know whether consumers can keep spending at the same pace. If consumer demand begins to soften at the same time inflation is picking up, that would further reinforce the stagflation narrative that has been building across markets and could weigh on stocks such as the S&P 500.
US ISM Manufacturing & Services PMIs (Wednesday & Friday)
US ISM data will be watched closely for early signs of how the energy shock is affecting the economy. These surveys are among the timeliest indicators of business activity and will be important in helping markets judge whether rising oil prices are beginning to slow growth while also pushing inflation higher.
Expectations are for ISM Manufacturing PMI to ease very slightly to 52.3 from 52.4. As a reference point, the latest S&P Global flash manufacturing PMI rose to 52.4 in March from 51.6 in February, marking a two-month high.
New orders improved, but supplier delivery times lengthened sharply — likely reflecting war-related shipping disruption — while input costs rose strongly due to higher energy prices. Investors will now want to see whether that pattern shows up in the ISM manufacturing survey. The prices paid component will be particularly important. It had already risen to 70.5 in February — its highest level since mid-2022 — even before oil prices surged.
The services PMI, due on Friday, will also matter. The S&P Global services reading fell to 51.1 in March from 51.7, marking an 11-month low, as firms cited softer demand and weaker confidence. Again, the key detail here will be price pressures. If both manufacturing and services are showing rising input costs alongside weaker activity, that would reinforce stagflation concerns and could weigh on stocks, pulling the Dow Jones lower.
Nonfarm payrolls (Friday)
Friday’s US jobs report will be one of the biggest events of the week. February’s nonfarm payrolls report surprised to the downside, with the economy losing 92,000 jobs after January’s figure was revised lower. Meanwhile, the unemployment rate rose to 4.4%, moving closer to November’s four-year high of 4.5%. That report revived concerns about the health of the US labour market. This month’s report will therefore be watched closely to see whether February was a one-off soft patch or the beginning of a more sustained slowdown.
That matters because the Fed is now dealing with a difficult backdrop: rising inflation expectations linked to energy prices, but also signs that growth may be cooling. Consensus currently points to a modest rebound in jobs growth to 48,000, with unemployment expected to remain at 4.4%.
If payrolls disappoint again, markets could start to price in a greater chance of Fed easing later in the year, which would likely weigh on the US dollar, and USD crosses such as the USD/JPY and support rate-sensitive assets. A stronger report could support more hawkish Fed bets, boosting USD.
Bottom line
In the current environment, headlines from the Middle East are still likely to matter more than any single data release — but this week’s numbers will help shape how markets respond.
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