Macro Wrap

Brent oil prices surged by more than 6% to trade near the USD110/bbl mark as Iran carried out an attack on a major LNG site in Qatar, in retaliation against attacks its gas facilities. Meanwhile, the return of risk aversion in the market together with the pushback in the timing of the US Fed rate cut resulted in stock markets meltdown overnight and treasury yields rising significantly as the broad dollar recorded its first gain for this week. Market is now pricing in only one 25bps rate cut for this year.

US equities tumbled, the USD rose, and US bond yields rose as the Federal Reserve held interest rates steady for the second straight meeting. The DJIA, the S&P 500, and the Nasdaq Composite Index dropped 1.6%, 1.4%, and 1.5% respectively. Euro Stoxx 50 fell 0.6% to 5,737, weighed down by a 6% spike in European gas prices.

The US Treasury yield curve shifted higher as investors digested the Fed’s updated projections. The US 2Y yield rose 10bp to 3.77%, while the US 10Y yield increased 7bp to 4.27. Brent crude oil surged 4% to settle at USD107.40 per barrel on news of the Qatari infrastructure damage, while gold fell nearly 4% to USD4,819.

The Fed kept policy rates unchanged at 3.50-3.75% for a second consecutive meeting as expected, as policymakers noted elevated inflation and solid economic growth, vs. job gains that are low. Fed chair Powell also guided that while implications from the ME war remain uncertain, the Fed won’t lower rates further until inflation resumes cooling. Against this backdrop, revised Fed projections see 2026 GDP growth at 2.4% y/y (prior: 2.3%), headline and core PCE inflation at 2.7% each (prior: 2.4% and 2.5% respectively), while unemployment rate projections remain at 4.4%. Median dot plot projections also still see one cut in 2026 and 2027, of which swap markets are pricing in the first cut only by end-2026.

US producer prices rose 0.7% in February 2026, the largest increase in seven months, surpassing forecasts. Goods prices increased 1.1%, led by a 48.9% rise in vegetable prices. Service prices rose 0.5%, with traveller accommodation up 5.7%. Core PPI rose 0.5%. Annual headline producer inflation hit 3.4%, with core inflation at 3.9%.

Economic data: we get initial jobless claims, new home sales, building permits, and the leading index.