2026 Weekly Update

Market update

The S&P 500 closed the week at 6,632.19, -1.60% lower. The Dow Jones closed at 46,558.47, -1.99%, with the Nasdaq lower by -1.26%. The volatility index VIX closed the week at 27.19, down from 29.49. The Euro Stoxx 600 fell -0.47%.

The 10-year UST closed at 4.28%, up from 4.14% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 58bps. US Corporate Bond spreads: Investment Grade spreads widened +8bps at 91bps and High Yield spreads widened +16bps at 356bps. German 10-year Bunds yield closed at +2.98% up from +2.86% a week before. In Europe, Corporate Investment Grade spreads widened +9bps at 99bps and High Yield widened +32bps at 345bps.

The US Dollar Index (DXY) appreciated +1.39% last week and closed at 100.36. The Euro closed at 1.1417 (-1.73%); the Yen depreciated -1.24%, closing at 159.73 and the Swiss Franc depreciated -1.95%, closing at 0.7911. Gold closed at $5,019.49, depreciating -2.94%. Oil was higher, Brent closed at $103.14 (+11.27%) and WTI at $98.71 (+8.59%).

Macroeconomy

US prices

The February CPI was right in line with expectations on both headline (+0.3% m-o-m and +2.4% y-o-y) and core (+0.2% m-o-m and +2.5% y-o-y). The y-o-y numbers held steady in Feb. vs. Jan. (at +2.4% headline and +2.5% core). Food prices accelerated to +0.4% m-o-m (up from 0.2% in Jan.), with food at home +0.4% (vs. +0.2% in Jan) and food away from home +0.3% (vs. 0.1% in Jan). Energy prices swung to +0.6% m-o-m vs. -1.5% in Jan. (energy is likely to surge at least for Mar. and Apr. given events in the Middle East). Shelter overall was steady at +0.2% m-o-m (same as in Jan.), with rent of primary residence cooling to +0.1% (vs. +0.2% in Jan) while OER (Owners Equivalent Rent) held steady at +0.2%.

Federal Reserve

Economists expect the Fed to keep rates unchanged on Wednesday and think they will emphasize elevated geopolitical uncertainty. They only expect minor statement tweaks, including smoothed language on recent labor data (especially given January and February’s conflicting payrolls) and a nod to geopolitical risks, highlighting uncertainty and near-term upside pressure on inflation. For the Fed, an important consequence of the conflict is that higher energy prices have begun to feed into inflation assumptions. Economists expect Fed officials to reflect a similar adjustment when they publish their updated Summary of Economic Projections. Indeed, core PCE inflation has registered back-to-back 0.4% monthly increases now, pushing the year-on-year rate to 3.1%, the highest since early 2024.

European Central Bank

The European Central Bank (ECB) is expected to keep policy rates unchanged on Thursday. The key focus will be on what the ECB communication implies about the path forward. The euro area macroeconomic backdrop has shifted significantly in the past two weeks, with downside risks to growth and clear upside risks to inflation. Considerable uncertainty remains, largely dependent on the duration and intensity of the ongoing conflict. The ECB is likely to acknowledge heightened uncertainty and increased near-term inflation risks. President Lagarde may note that the likelihood of a rate hike has risen, while emphasizing a data-dependent approach. Even if tightening becomes more probable, April seems premature due to limited new information; June appears more likely, especially with updated staff forecasts. March staff forecasts may not fully reflect the impact of rising energy prices, as the cut-off was in mid-February. However, the ECB may use alternative cut-off dates to incorporate some of the recent energy price increases. Projections are expected to show higher headline inflation for 2026–27, stable core inflation, and a modest downward revision to growth. Markets will also look for any scenario analysis. Overall, economists expect the ECB to signal its readiness to act if necessary, but not to indicate any immediate urgency to adjust policy at this stage.

Bank of England

The Bank of England (BoE) is likely to remain on hold at its next meeting on Thursday, as the conflict and the related energy shock have increased uncertainty around inflation once again. The Bank was thus very likely to cut rates in March, before the conflict started. The MPC may retain an implicit easing bias, conditional on future developments in energy markets. However, the Bank’s risk scenarios analysis may lean hawkish, leading to vague forward guidance on policy rates. At the minimum, Governor Bailey may downplay the risk of rate hikes at this stage. Domestic fundamentals call for more monetary easing, but the short-term rate path has become very uncertain. In a scenario of de-escalation where energy supply improves gradually, the BoE could still cut rates in April or, more likely, in June.

Swiss National Bank

The Swiss National Bank (SNB) is expected to keep its policy rate unchanged at 0% at the upcoming policy meeting on Thursday. Swiss inflation faces opposing forces: upward pressure from higher energy prices (though less than in the euro area due to Switzerland’s energy mix) and downward pressure from a stronger Swiss franc (CHF). So far, incoming data have broadly aligned with the SNB’s projections. FX interventions will be a key topic both in the policy statement and during the Q&A. Martin Schlegel, Chairman of the SNB’s Governing Board, is likely to reiterate the SNB’s readiness to intervene in the FX market if necessary. To be sure, large-scale interventions as seen in the past are very unlikely, but targeted FX interventions are likely and are now, in our view, the first line of defense. On rates, the SNB will likely keep its options open in both directions. Markets are currently pricing in around 20bps of tightening by December 2026, but we remain far from a scenario in which the SNB would raise rates.

China data

The Chinese activity data for February has been stronger than expected. For instance, industrial production is up +6.3% on a y-o-y basis over the first two months of the year (vs. +5.3% expected), and retail sales also beat expectations at +2.8% (vs. +2.5% expected). However, given the strikes on Iran began on February 28, we’ll have to wait for the March and April releases to get a better sense of how that’s impacting the data. That repricing had a clear effect on sovereign bonds. The 10yr bund yield was up +12.2bps to 2.98%, marking its highest level since July 2011 during the Euro crisis. Moreover, the 2yr German yield rose +13.1bps to an 18-month high of 2.43%. We saw a similar move for the US as well, where the 10yr Treasury yield rose +13.8bps to 4.28%, its highest level since January.

Highlights

On rates

There was a clear reaction in central bank pricing, as speculation mounted about a hawkish response. So by the end of the week, for the Fed, the amount of cuts priced by December’s meeting fell from 44bps to just 24bps. In the case of the ECB, markets were pricing 47bps rate hikes by the December meeting, with a rate cut fully priced in by the July meeting. Regarding the BoE, pricing for a rate hike this year hit an 82% probability. That repricing had a clear effect on sovereign bonds, which suffered steep losses. In fact, the 10yr bund yield was up +12.2bps to 2.98%, marking its highest level since July 2011 during the Euro crisis. Moreover, the 2yr German yield rose +13.1bps to an 18-month high of 2.43%. It was a similar story for the US as well, where the 10yr Treasury yield rose +13.8bps to 4.28%, its highest level since January.

Oil

Tanker costs from the Gulf to China have declined significantly but remain elevated (13 times higher than before the war, down from 19 times). Nevertheless, the Strait of Hormuz remains closed. So far, tankers en route to their destinations and oil in storage have bridged the gap. However, analysts estimate that the world economy cannot withstand more than two to three weeks without Gulf oil. The IEA’s announcement to release 400 million barrels out of 1.2 billion barrels of Strategic Petroleum Reserves will cover only 9 days of average oil consumption in advanced economies. A similar assessment applies to the US administration’s decision to allow buyers to take Russian oil cargoes already at sea. This measure will only buy a limited amount of time. Russian oil production is currently 0.4 million barrels per day below its pre-COVID level. The East-West Saudi pipeline has a capacity of 7 million barrels per day. However, Yanbu, the terminal of this pipeline on the Red Sea, has a capacity of only 3 million barrels per day. Adding the increased oil supply from Russia, US, Brazil, Canada, Norway, and 3 million barrels per day from the Saudi pipeline, all together this will buy some time but will not compensate for the loss of nearly 20 million barrels per day from the Gulf. At the moment, pressure from China, Gulf countries, Europe, and US consumers is strong. The market is leaning toward a resolution. It is still pricing in an easing of the situation, with Brent expected at USD 82 by year-end, compared to USD 102 in 10 months’ time after the peak of the first year of the Ukraine war.

What to watch

• Monday: US Empire Manufacturing; China February Data
• Tuesday: US ADP weekly Employment; Germany ZEW Survey; Australia and Indonesia Rate Decisions
• Wednesday: US FOMC & Canada Rate Decision; US PPI and Durable Goods Orders; Japan Exports
• Thursday: US Initial Jobless Claims; BOE, ECB, Riskbank and SNB Rate Decisions; UK Employment and Weekly Earnings; BOJ Rate Decision; New Zealand Q4 GDP
• Friday: China Loan Prime Rates; Taiwan Exports