Trump Veers From Iran Off-Ramp

For the week ending 2 April 2026

As of midday Thursday, global equities shed gains from earlier in the week as hopes for an end to the war in Iran faded after a Wednesday address by US President Donald Trump. The yield on the US 10-year Treasury note slipped 12 basis points from last Friday to 4.33%, while the price of a barrel of West Texas Intermediate crude oil rose $15 to $112. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), held steady at an elevated 25.2.

IRAN CRISIS

Markets rallied early in the week on hopes that the US campaign in Iran was in its final stages. On Wednesday evening, however, those hopes were dashed when President Trump threatened to escalate the conflict over the next two to three weeks while offering no plan to reopen the Strait of Hormuz. He instead mentioned specifically targeting Iran’s oil facilities, which helped fuel a spike in global oil prices.

During the address, Trump also called on US allies that rely on oil from the Mideast to “take the lead” in reopening the Strait, predicting that the strategic chokepoint will “reopen naturally” once the conflict concludes, as Iran will be desperate to sell oil to rebuild. French President Emmanuel Macron said Thursday that military action is an unrealistic option to reopen the Strait. Hosted by the UK, a coalition of 35 nations met virtually on Thursday to discuss plans for de-mining and policing the waterway once the conflict ends.

Meanwhile, on Wednesday, Iranian Foreign Minister Abbas Araghchi told Iranian state media that the future of the Strait will be determined by Iran and neighboring Oman. Countries in the region are reportedly weighing plans to build new pipelines to circumvent the waterway entirely, though even if those projects come to fruition, they would take years.

Meanwhile, the regime in Tehran appears fractured amid reports that President Masoud Pezeshkian and the Islamic Revolutionary Guard Corps are battling for strategic control of the country. Pezeshkian reportedly warned that without a ceasefire, the IRGC’s strategy of escalating regional tensions by attacking neighboring countries could lead to the collapse of Iran’s economy within a month. Some of the optimism early in the week was based on the notion that the US had identified regime factions with which it could negotiate. Those hopes dimmed after Trump’s Wednesday evening address. 

MACRO NEWS

Powell: Fed tools can’t counter supply shocks

Federal Reserve Chair Jerome Powell said Tuesday that the Fed’s tools have no meaningful impact on supply shocks, such as the current disruption in oil markets. Powell said that “the tendency is to look through” an oil price shock as long as inflation expectations remain anchored, but he highlighted the risk that “a series of supply shocks could lead the public to start expecting higher inflation over time.” The comments led investors to believe that the Fed will not rush to increase interest rates, despite expectations that inflation may rise in the near term. Powell noted that there are risks to both sides of the Fed’s inflation and employment mandates and that policy is currently well placed to deal with the oil shock. He added that the economy remains “dynamic and productive,” and he’s optimistic about the medium-term outlook. Powell said the Fed is watching private credit “super closely” but does not see stress having broader, systemic impact. Bonds extended their recent rebound on the comments, driving rates lower.

QUICK HITS

In March, the ISM manufacturing index rose to its highest level since August 2022, though the Prices Paid component rose sharply.

US retail sales rose 0.6% in February after falling 0.1% in January, while core sales rose 0.5% (up from 0.2%), indicating that consumer demand was solid ahead of the start of the war.

US weekly jobless claims fell to 202,000 last week, a sign that the US labor markets remain stable despite war uncertainty.

In an interview with Reuters, Bank of England Governor Andrew Bailey said on Wednesday that markets have gotten “ahead of themselves” by pricing in rate hikes in the UK. The BOE must act in a way that doesn’t harm the economy or jobs, he added, noting businesses have less ability to raise prices today than previously.

Eurozone CPI rose to 2.5% year-over-year in March, up from 1.9%. The core rate fell to 2.3% from 2.4% the month before. On a month-over-month basis, prices jumped 1.2% from 0.6% in February.

On Monday, the US Department of Labor released proposed rules for alternative assets in retirement plans that would provide legal protections for plan sponsors who are considering adding them to 401(k) lineups. If approved, the new rules would limit liability for plan sponsors that follow a defined process when adding private assets to 401(k) menus. 

The Conference Board’s consumer confidence index unexpectedly rose to 91.8 in March from 91.0.

US Trade Representative Jamieson Greer said the planned May summit between President Trump and China’s President Xi Jinping remains on track. Greer said he sees stability in the US–China relationship over the next year.

The US State Department on Monday announced it is resuming operations at its embassy in Caracas, a key milestone in relations between the US and Venezuela. In a further sign of normalization, the US lifted sanctions on Venezuelan leader Delcy Rodrigues on Wednesday.

THE WEEK AHEAD

Monday: US ISM services and composite PMIs  

Tuesday: Eurozone and UK services and composite PMIs; US durable goods orders

Wednesday: Eurozone retail sales; US FOMC minutes

Thursday: US personal income/spending, PCE inflation, Q4 GDP revision

Friday: US CPI; Canada employment

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.