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I don’t have time to finish a sentence before new headlines send markets upside down.

When I returned to my desk on Monday, Trump had given Iran a 48-hour ultimatum — with only a few hours left before it expired. After that, he said he would “obliterate” the nation’s power plants. Oil was up and the market selloff was deep.

By the time I posted my morning note and grabbed a coffee, Trump had made a major U-turn, saying he would give Iran five days of ceasefire following “very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East” — his words on Truth Social.

US crude tanked 10%, Brent fell nearly 9%, yields dropped, and equity markets rebounded sharply — as if the war were over and we could return to peace. Remember peace? It’s been a while.

Fun fact: Iranian officials said there had been no direct or indirect contact with Trump. (sad trombone).

So yes, Donald Trump ‘Chickens Out’—because the Iranian bite was probably too big to be swallowed, but him ‘chickening out’ won’t calm the game if Iranians don’t comply.

Therefore TACO optimism could hardly last. The idea that Trump can act alone and shape outcomes doesn’t hold if the counterparty refuses to engage. Any resolution in the Middle East is also contingent on Iran’s willingness to de-escalate.

The Strait of Hormuz remains effectively constrained, with only a limited number of tankers crossing the critical waterway, and oil is rebounding this morning — both Brent and WTI are up more than 3% at the time of writing. Equities are under pressure again, with Asian indices giving back earlier gains.

Trump’s five-day ceasefire is set to end toward the end of the trading week — no surprise. What happens next is anyone’s guess.

But yesterday’s price action suggests that investors are more afraid of missing a post-war rally — similar to the post-“Liberation Day” rebound — than of getting a few entries wrong. They continue to look for any hint of optimism.

Meanwhile, policymakers are watching through a more critical lens. European Central Bank (ECB) officials warn that the current energy shock could turn into stagflation if prices remain high and volatile.

In Japan, recent data showed inflation easing to near a four-year low, but the country’s largest labour group secured average pay rises above 5% for a third consecutive year — well above inflation — complicating efforts to stabilise price dynamics, especially alongside rising energy costs. The USD/JPY eased to 158 yesterday amid a broadly stronger US dollar following Trump’s unverified Iran announcement. The pair is rising again this morning, as the dollar rebounds more broadly on the realisation that Trump cannot unilaterally ease geopolitical tensions.

Market sentiment is fully dependent on war headlines and energy prices. Reactions are highly emotional: investors want the war to end, the latest selloff to be “the dip,” and to catch that dip. But uncertainty remains, and the TACO trade is only sustainable if Iran plays along.

So we wait — watching both headlines and data.

Today, we will get a first glimpse of how global economic sectors are reacting to rising energy prices and escalating tensions in the Middle East. Preliminary March PMI expectations mostly point lower, reflecting weaker demand and rising anxiety over a potential new energy shock and tighter monetary conditions.

• In Australia, both manufacturing and services PMI declined, with services slipping into contraction below 50 and manufacturing hovering near the threshold. Recall that the Reserve Bank of Australia (RBA) raised rates for the second time in a row at last week’s meeting.
• Japanese PMI figures also weakened, pointing to slower expansion in both services and manufacturing. The Bank of Japan (BoJ) remains on a gradual normalization path to keep inflation pressures in check.
• European PMI figures are expected to tell a similar story: softer activity amid higher energy costs and tighter financial conditions.

But softer-than-expected PMI data is unlikely to reverse the recent hawkish shift in central bank expectations. On the contrary, slowing growth combined with rising inflation pressures will fuel stagflation concerns and could weigh further on sentiment. In this environment, good news will be good news — and bad news will be bad news.

Looking ahead, even if the war were to stop today, repairing damage to Middle Eastern energy infrastructure would take time. Estimates suggest it could take months — even years — to fully restore output to pre-war levels.

As such, an energy-driven market shock would be harder to dismiss than a Trump-driven trade crisis — the backdrop against which the TACO acronym emerged. In that episode, Trump acted unilaterally, counterparts had limited leverage beyond negotiation, and eventual tariff rollbacks provided relief. The situation with Iran is fundamentally different.

That said, this remains a cautious view. Nothing prevents investors from buying like there is no tomorrow on any sign of optimism, overlooking risks, stretched valuations and margin pressures from rising energy costs.

In focus today

In the euro area, the March flash PMIs are released, which is the first growth indicator following the war in Iran. The manufacturing sector is expected to record a large decline to 49.6 from 50.8 as higher energy costs have likely lowered some production in March. The services sector is less directly affected by the energy increases in the short term, so we expect a smaller decline here to 51.1 from 51.9, thereby keeping the sector in growth territory.

From the US and UK, we also get flash March PMIs, which will shed further light on how rising oil prices are affecting global economic activity. Both countries are expected to report declines but remain in growth territory. Recent PMI data from the UK pointed to stronger economic momentum in Q1, while US data showed manufacturing slowing amid weaker output, prices and new orders.

In Hungary, the central bank is set to announce its Base Rate decision. We expect the rate to hold steady at 6.25%, aligning with consensus expectations.

Economic and market news

What happened overnight

In Japan, data has come in on the soft side, with composite PMI at 52.5 down from 53.9, driven by both manufacturing and service. CPI inflation, excluding fresh food, declined to 1.6% in February from 2.0%, marking the first time below the inflation target in four years. Fuel subsidies is a key driver, and the reality has changed a lot since February as PMIs reveal a marked increase in firms' input prices and the yen remains under pressure. We expect the next BoJ hike in April. Markets are pricing close to 50-50 for that.

In EU-Australia relations, a significant trade agreement has been finalised. The deal eliminates tariffs on nearly all European goods and Australian critical minerals, while introducing quotas for certain Australian agricultural exports such as beef and sheep meat. The removal of import tariffs on Australian critical minerals into the EU is expected to support the stabilisation of global supply chains.

What happened yesterday

The Middle East conflict triggered a shift in markets yesterday as the US announced a five-day pause in attacks on Iranian energy infrastructure amid reports of ongoing talks to end the conflict. Iran dismissed the claims as "fake news" but confirmed efforts to de-escalate tensions, while reports suggest direct negotiations may occur in Islamabad this week. Israel confirmed discussions to secure a deal addressing the war's objectives and "protecting vital interests," while a European official noted Egypt, Pakistan, and Gulf states are relaying messages between the US and Iran.

Markets saw relief from Trump's announcement, briefly sending Brent crude below USD 100/bbl, though prices remain elevated compared to pre-war levels. While easing tensions could drive prices lower, risks of a rebound persist as WSJ reports Saudi Arabia and the UAE are pushing US to continue to fight and are mulling joining the war.

In the US, Fed Governor Miran (voter) emphasised the need to wait for more data before adjusting the policy outlook. He maintained his stance on gradual interest rate cuts, revising his forecast from six to four cuts this year while raising his inflation outlook. This morning, we adjusted our Fed call slightly and now call for the final two rate cuts only in September and December this year (prev. June and September). Read more in Reading the Markets USD - War delays rate cuts, 24 March.

In the euro area, consumer confidence fell more than expected to -16.3 in March (cons: -14.2, prior: -12.2). Consumer confidence thus reached the lowest level since October 2023. Consumers are likely to be more cautious with spending due to the decline in confidence, which highlights the negative growth consequences of the war in Iran. The survey period is "generally the first two to three weeks of the month" according to Eurostat, so the effect of the war is captured, but as energy prices have continued to rise during the month the full effect is likely not captured yet.

Equities: Equities rebounded in a rare manner following a post from the US president that negotiations have been initiated and a five-day long halt to attacks will follow. European equities that were down south of -2.5% on Monday, rebounded 4.5% from low to high. The gains later faded, as Iranian officials denied that negotiations have been held. Nonetheless, equities closed higher with S&P 500 up 1.2%, small cap Russell 2000 up 2.3% and Stoxx 600 0.6%. Futures have however dipped back into negative this morning.

The sector preference was mostly reversal of geopolitical trades. Cyclicals led the gains, and primarily growth cyclicals as yields dropped, including tech and consumer discretionary in the lead. What is just as interesting is to see which sectors that did not rebound on the news. The real estate sector, one of the worst performers the last week, did not benefit from the drop in yields, but continued to underperform. Similarily, consumer staples that, believe it or now, have sold off more than industrials over the last month did not rebound either. To us, this is a sign that investors priced out some of the recession risk yesterday through the cyclicals, but that inflation and rate hike expectations are little changed. This can serve as a guide on what a TACO trade would like ahead.

FI and FX: It was quite the rollercoaster ride for market yesterday. From a tense opening, where oil prices were on the rise pushing the USD and yields higher to a sudden relief rally after US postponed attacks on Iranian energy installations citing productive talks to renewed rise in tensions as WSJ reports Saudi Arabia and UAE are pushing for the fight to continue. What was most striking yesterday was the development in EUR/NOK. The pair moved sharply higher in the morning - a move that did not reverse in the relief rally. The correlation to moves in energy prices has turned as risk assets have started to price a growing risk of recession should central banks tighten monetary policy on top of the energy supply shock.

Daily Pivots: (S1) 211.78; (P) 212.55; (R1) 213.50; More...

Intraday bias in GBP/JPY stays mildly on the upside. On the upside, Firm break of 213.28 resistance will resume the rally from 207.20 and target a retest on 214.98 high. For now, risk will stay mildly on the upside as long as 210.77 support holds, in case of retreat.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Firm break of 214.98 will target 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90. This will remain the favored case as long as 55 W EMA (now at 203.13) holds, even in case of another deep pullback.

Daily Pivots: (S1) 183.35; (P) 183.85; (R1) 184.51; More...

Intraday bias in EUR/JPY remains mildly on the upside for 184.75 resistance. Firm break there will resume the whole rise from 180.78 and target a retest on 186.86 high. For now, risk will stay mildly on the upside a long as 182.02 support holds, in case of retreat.

In the bigger picture, a medium term top could be in place at 186.86 and some more consolidations would be seen. Nevertheless, as long as 55 W EMA (now at 175.61) holds, the larger up trend from 114.42 (2020 low) remains intact. Firm break of 186.86 will pave the way to 78.6% projection of 124.37 (2022 low) to 175.41 (2025 high) from 154.77 at 194.88 next.

Daily Pivots: (S1) 0.8625; (P) 0.8654; (R1) 0.8676; More…

Intraday bias in EUR/GBP remains neutral for the moment. With 55 D EMA (now at 0.8682) intact, further decline is in favor. On the downside, firm break of 0.8611 will resume the whole fall from 0.8863 to 100% projection of 0.8863 to 0.8611 from 0.8788 at 0.8536. However, sustained break above 55 D EMA will turn bias back to the upside for 0.8788 resistance instead.

In the bigger picture, current development revived the case that whole rise from 0.8221 (2024 low) has completed at 0.8863, after rejection by 61.8% retracement of 0.9267 (2022 high) to 0.8221 at 0.8867. Sustained trading below 38.2% retracement of 0.8821 to 0.8863 at 0.8618 will confirm this case, and bring deeper fall to 61.8% retracement at 0.8466 at least. For now, medium term outlook is neutral at best as long as 0.8863 resistance holds.

Daily Pivots: (S1) 1.6469; (P) 1.6546; (R1) 1.6642; More...

EUR/AUD's break of 1.6594 resistance indicates that a short term bottom was already formed at 1.6125. Intraday bias is back on the upside for stronger rebound to 55 D EMA (now at 1.6769). Firm break there will target 38.2% retracement of 1.8554 to 1.6125 at 1.7053. Nevertheless, below 1.6413 minor support will bring retest of 1.6125 low.

In the bigger picture, fall from 1.8554 medium term top is seen as reversing the whole up trend from 1.4281 (2022 low). Deeper decline should be seen to 61.8% retracement of 1.4281 to 1.8554 at 1.5913, which is slightly below 1.5963 structural support. Decisive break there will pave the way back to 1.4281. For now, risk will stay on the downside as long as 55 W EMA (now at 1.7245) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9102; (P) 0.9124; (R1) 0.9154; More....

Intraday bias in EUR/CHF remains neutral for the moment. On the upside, firm break of 38.2% retracement of 0.9394 to 0.8979 at 0.9138 will extend the rebound from 0.8979 short term bottom to 61.8% retracement at 0.9235. On the downside, below 0.9067 minor support will turn intraday bias back to the downside for retesting 0.8979 low instead.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.1519; (P) 1.1579; (R1) 1.1674; More….

Intraday bias in EUR/USD stays neutral for the moment. More consolidations could be seen above 1.1408. But with 1.1666 cluster resistance (38.2% retracement of 1.2081 to 1.1408 at 1.1665) intact, further decline is in favor. On the downside, below 1.1408 will resume the fall from 1.2081 to 38.2% retracement of 1.0176 to 1.2081 at 1.1353. However, decisive break of 1.1666 will argue that the fall from 1.2081 has completed, and turn bias back to the upside for 61.8% retracement of 1.2081 to 1.1408 at 1.1824.

In the bigger picture, prior break of 55 W EMA (now at 1.1501) should confirm rejection by 1.2 key cluster resistance level. The whole up trend from 0.9534 (2022 low) might have completed as a three wave corrective rise too. Deeper fall is expected to long term channel support (now at 1.0528). Meanwhile, risk will stay on the downside as long as 1.2081 holds, even in case of strong rebound.

Daily Pivots: (S1) 157.72; (P) 158.69; (R1) 159.40; More...

Intraday bias in USD/JPY remains neutral as consolidations continue below 159.88. Another falling leg could be seen, but downside should be contained by 38.2% retracement of 152.25 to 159.88 at 156.96 to bring rebound. On the upside, break of 159.88 will target a test on 161.94 high.

In the bigger picture, outlook is unchanged that corrective pattern from 161.94 (2024 high) should have completed with three waves at 139.87. Larger up trend from 102.58 (2021 low) could be ready to resume through 161.94. This will remain the favored case as long as 55 W EMA (now at 152.70) holds. Firm break of 161.94 will pave the way to 61.8% projection of 102.58 to 161.94 from 139.87 at 176.75.

Daily Pivots: (S1) 1.3300; (P) 1.3389; (R1) 1.3522; More...

Range trading continues in GBP/USD and intraday bias remains neutral for the moment. With 1.3482 resistance intact, further decline is in favor. On the downside, below 1.3216 will resume the fall from 1.3867 to 1.3008 structural support. However, decisive break of 1.3482 will argue that the fall from 1.3867 has completed, and turn bias back to the upside for 61.8% retracement of 1.3867 to 1.3216 at 1.3618.

In the bigger picture, considering bearish divergence condition in both D and W MACD, a medium term top should be in place at 1.3867. Firm break of 1.3008 support will argue that fall from 1.3867 is at least correcting the rise from 1.0351 (2022 low) with risk of bearish reversal. That would open up further decline to 38.2% retracement of 1.0351 to 1.3867 at 1.2524. For now, medium term outlook will be neutral at best as long as 1.3867 resistance holds, or until further development.