Fed minutes highlight risks to both the labour market and inflation

Minutes from the March 17-18 FOMC meeting revealed the two-sided risks facing the US economy in the wake of a prolonged Middle East conflict. Most members were concerned that a protracted conflict would hurt the labour market and necessitate a rate cut, but “many” were concerned rising oil prices would push inflation higher – with some members suggesting that the meeting minutes should signal that rate rises could be back on the table if inflation remained above target. Ultimately, most members concluded that it was “too early to know”, maintaining a wait-and-see approach.

Reports suggested that the Strait of Hormuz appeared to remain largely closed, with Iranian officials claiming the terms of the ceasefire agreement had been violated. Vice President, JD Vance, is expected to lead in-person negotiation in Islamabad over the weekend. President Trump, posting on Truth Social, on Wednesday, suggested that any country found to be exporting arms to Iran would be subject to a 50% tariff.

The World Bank has made downward revisions to their regional forecasts as a result of the conflict. The organization’s latest forecast round highlighted that even with a near-term complete end to hostilities the region would likely see longer term impacts due to damage to key infrastructure. The World Bank expects the GCC to see growth of 1.3% in 2026, down from 4.4% in 2025, while the UAE is forecast to grow by 2.4% in 2026, down from the 5.1% growth expected during its January forecast round.

German factory orders rose less than expected in February, rising 0.9% m/m after falling 11.1% in January. The outlook for the German economy has deteriorated since the start of the conflict in the Middle East, with investor confidence falling sharply in April. Separately, Eurozone retail sales fell 0.2% m/m in February, in line with expectations, after seeing no growth the month prior.

Today’s Economic Data and Events

• 10:00 GE industrial production (Feb): forecast 0.7% m/m
• 16:30 US PCE (Feb): forecast 2.8% y/y
• 16:30 US Initial jobless claims (w/e 4 Apr): forecast 210k

Fixed Income

• US Treasuries ended the day broadly unchanged, with early gains being eroded in the US session. Both the 2yr and 10yr yields were fractionally lower at 3.7855% and 4.2911%, respectively.

FX

• The dollar declined against a basket of major peer currencies, as risk appetite returned, with the spot index down 0.7%. EURUSD rose 0.6% to 1.1663, while GBPUSD gained 0.8% to 1.3394. USDJPY fell 0.7% to 158.57.
• In emerging markets, USDEGP fell 2.3% to 53.32, while USDINR fell 0.5% to 92.58.

Equities

• US equites rallied on news of the ceasefire. The Dow Jones gained 2.9%, the S&P 500 rose 2.5% and NASDAQ increased 2.8%. European equity markets also saw sizeable gains on the day. The Eurostoxx 50 and DAX were both up 5%, the FTSE 100 was higher by 2.5%, and the CAC 40 was up by 4.5%.
• Local equity markets rose sharply in response to the ceasefire. The DFM gained almost 7% and the ADX rose 3.7%. The Tadawul increased 2.3%.

Commodities

• Oil prices fell in response to the ceasefire announcement, with Brent declining 13.2% to USD 94.75/b and WTI falling 16.4% to USD 94.41/b.