Recent U.S. data continue to point to an economy that is still expanding, but with a more fragile and uneven growth profile emerging beneath the surface<\/strong>. Business surveys remain in expansion<\/strong>, with ISM services at 56.1 and manufacturing holding above 50, suggesting activity has not rolled over despite tighter financial conditions. At the same time, incoming data has become more mixed. Personal income and consumption both rose in January; existing home sales rebounded in February; and the US trade deficit narrowed sharply<\/strong>, indicating that parts of the domestic economy remained resilient even as overall momentum softened.<\/p>\n\n\n\n The US labour market has become the key source of domestic uncertainty<\/strong>, but, importantly, signs of softening had already emerged before the geopolitical shock. February nonfarm payrolls declined by 92,000, the unemployment rate rose to 4.4%, and participation edged lower, suggesting that hiring momentum has weakened more materially than previously assumed, reinforcing the gradual cooling trend observed in recent weeks. While one report does not establish a trend, and other indicators, such as jobless claims, remain relatively contained, business investment signals have also softened, and small-business optimism has edged lower<\/strong>. The economy was therefore entering this period with less underlying momentum than markets had been pricing.<\/p>\n\n\n\n That distinction matters because the subsequent energy shock is not hitting an overheating economy, but one that was already losing balance. The escalation in Iran has disrupted flows through the Strait of Hormuz and pushed oil sharply higher<\/strong>, turning what had been a potential risk into an active source of macro pressure. Crucially, the disruption remains partial rather than absolute. Shipping continues at reduced volumes<\/strong>, suggesting a strategy of controlled disruption rather than full closure. Even without a complete shutdown, the shock is large enough to lift inflation expectations<\/strong>, pressure household purchasing power through higher fuel costs, and tighten global energy markets, particularly in LNG.<\/p>\n\n\n\n The broader market response suggests that the tightening channel is not limited to energy alone. The dollar has strengthened during the conflict<\/strong> and, in relative terms, has acted as a more effective haven than traditional alternatives, implying that investors are pricing in not just higher oil prices but also a broader deterioration in global liquidity and risk appetite. At the same time, market pricing remains relatively orderly, suggesting an underlying expectation that the disruption will not persist indefinitely.<\/p>\n\n\n\n That expectation reflects the evolving geopolitical calculus. Iran appears to be signalling its ability to impose economic pain without fully removing supply, preserving leverage while avoiding escalation that would trigger a more forceful international response. However, that leverage is likely time-limited. Strategic reserve releases, potential multinational efforts to secure shipping routes, and broader global coordination all point to a scenario in which the ability to sustain disruption diminishes over time. As a result, the current phase of the conflict is best understood as a window in which pressure is applied but not maximised<\/strong>.<\/p>\n\n\n\n For policymakers, the combination of weaker labour momentum and higher energy prices complicates the reaction function. On one hand, softer employment supports the case for eventual easing; on the other, the energy shock risks delaying confidence that inflation is moving sustainably lower. If the conflict proves short-lived, the macro impact is likely to remain contained and primarily sentiment-driven. However, the key risk lies in duration. A prolonged disruption would further tighten financial conditions<\/strong> and amplify the interaction between weaker growth and higher input costs, increasing the likelihood of a more persistent stagflationary dynamic.<\/p>\n\n\n\n Geopolitics has therefore become the dominant transmission channel for macro risk. The US economy remains operationally resilient, but the broader environment has shifted meaningfully. Markets entered the year pricing a relatively stable late-cycle expansion; they are now being forced to adjust to a backdrop that is more fragile<\/strong>, more externally driven, and increasingly sensitive to the path and duration of geopolitical escalation.<\/p>\n\n\n\n <\/p>\n\n\n\n <\/p>\n\n\n\n Treasuries sold off again over the week, but the move was part of a much broader global bond repricing rather than a purely domestic rate adjustment. Bond markets weakened across both geographies and maturities<\/strong>, with Europe hit particularly hard as investors reassessed the inflationary consequences of the Iran shock and pushed out expectations for central bank easing. U.S. yields also continued to grind higher into the end of the week, with the 10-year Treasury near 4.29%<\/strong>, underscoring that the rates market is no longer treating the current environment as a straightforward growth scare. Instead, it is being forced to price a more difficult mix of softer activity, higher energy costs, and greater policy uncertainty.<\/p>\n\n\n\n The Fed remains on hold, but the policy outlook has become materially less one-directional. The March 18 FOMC left rates unchanged and kept only a single 2026 cut in the median path, while also revising inflation projections higher. That combination reflects a Committee trying to preserve optionality rather than preparing to move quickly<\/strong> in either direction. The market debate has therefore shifted from when cuts resume to whether the next move is even necessarily lower. Some analysts now argue the last cut may already be behind us unless the data deteriorate more decisively, while others still expect weaker labour conditions and slower demand to bring easing back into view later in the year or in 2026.<\/p>\n\n\n\n The macro backdrop going into the shock was already mixed. Core inflation remained elevated, and growth momentum had softened, while February payrolls signalled a weaker labour-market trend beneath the surface. Under normal conditions, that combination would have strengthened the case for lower rates. Instead, higher oil prices and a stronger dollar have complicated the reaction function, raising the risk that the Fed will have to tolerate slower growth for longer before it can be confident that inflation is moving back toward target. That is why the current setup feels more stagflationary than recessionary: the first-order shock is inflationary, while the growth damage arrives with a lag through consumption, confidence, and tighter financing conditions.<\/p>\n\n\n\n The pressure is already showing up in sovereign funding markets. Germany\u2019s March 11 reopening of 10-year Bunds priced at 2.89%, above the 2.73% level at the prior sale, while the U.S. March 11 10-year auction stopped at 4.217% and saw softer-than-expected demand. Those moves matter because they show that the rise in yields is not just a secondary-market mark-to-market issue; it is feeding directly into government borrowing costs at a time when fiscal demands remain high, and issuance needs are not going away. The same transmission is appearing in household finance, with Freddie Mac\u2019s average 30-year fixed mortgage rate rising to 6.11% from 6.00% in the latest weekly data.<\/p>\n\n\n\n Curve dynamics have also become less straightforward. The usual late-cycle allocation pattern would be duration extension paired with a steepener, on the assumption that slower growth eventually pulls front-end rates lower while long-duration bonds hedge risk assets. But when the shock comes through oil, that framework becomes less clean. If energy prices remain elevated and inflation expectations stay under pressure, the long end can remain sticky even as the front end reflects weaker growth and a delayed easing path. That is one reason Treasuries have not behaved as a clean short-term safe haven during this episode, even if duration still retains value as a medium-term hedge against a deeper demand slowdown.<\/p>\n\n\n\n Looking ahead, the key issue is whether the energy shock proves temporary enough for markets to refocus on slowing labour demand and softer consumption, or persistent enough to keep inflation concerns dominant. If oil stabilises, duration should start to regain its more traditional role, and cuts could move back into the conversation. If oil remains elevated, the long end is likely to stay under pressure, global funding costs may continue to drift higher, and rate volatility will remain shaped less by clean recession logic than by the uneasy coexistence of weakening growth and renewed inflation risk.<\/p>\n","protected":false},"excerpt":{"rendered":" Macro Recent U.S. data continue to point to an economy that is still expanding, but with a more fragile and uneven growth profile emerging beneath the surface. Business surveys remain in expansion, with ISM services at 56.1 and manufacturing holding above 50, suggesting activity has not rolled over despite tighter financial conditions. At the same […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1640","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"blocksy_meta":[],"yoast_head":"\n
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