Global equity markets ended last week higher, but the gains mask a fair degree of intraweek volatility driven almost entirely by the evolving conflict between the United States and Iran.

The week opened on a wave of optimism after reports emerged that President Trump had told aides he was prepared to wind down the US military campaign, even without the Strait of Hormuz fully reopening. His public comments reinforced the impression, with Trump suggesting responsibility for the strait should fall to Europe and the Gulf states. Markets responded swiftly: the S&P 500 surged 2.4% on the day, the Nasdaq jumped 3.3%, and Brent crude dipped below US$104 a barrel. European equities followed suit, with the EuroStoxx 50 rallying close to 3%.

That optimism proved premature. By week's end, Trump delivered a national address striking a markedly different tone, threatening to bomb Iran "back into the Stone Age" if it refused to reopen the strait. Iran, for its part, rejected a proposed 45-day ceasefire and countered with its own 10-point plan, which was also dismissed. Over the Easter weekend, a fresh 48-hour ultimatum was issued, with the US threatening to target Iranian energy infrastructure and bridges. The deadline expires on Wednesday morning, Sydney time, and markets are holding their breath.

Despite the rhetorical escalation, net price movements over the full week were surprisingly contained. The S&P 500 finished up roughly 3% for the week, buoyed by those early-week peace hopes. The Australian dollar sits at around 69.2 US cents, barely changed. Brent crude, however, has climbed back to approximately US$110 a barrel — up from around US$100 earlier in the week — as the threat of broader damage to Middle Eastern energy infrastructure weighs on sentiment. Notably, dated Brent (a closer proxy for spot physical delivery) has pushed toward US$140, underscoring the acute scarcity in physical oil markets even as longer-dated futures remain relatively sanguine about an eventual resolution.

The key risk from here is escalation. If the US targets Iranian energy facilities, Iran has signalled it may strike oil production and desalination plants across Gulf states, which would extend the supply disruption well beyond a simple strait closure. OPEC+ has announced increased production targets, but this remains largely symbolic given that much of that output must transit through Hormuz.

Away from geopolitics, US economic data provided some reassurance. Non-farm payrolls surprised to the upside at +175,000 for March, well above the +65,000 consensus, though February was revised sharply lower to -133,000. The unemployment rate dipped to 4.3%. Fed Chair Powell noted that long-term inflation expectations remain well anchored, easing brief market fears of a near-term rate hike. The ISM Services index, however, flashed a warning: the employment component fell sharply from 51.8 to 45.2, and prices paid remained elevated.

In Australia, domestic data was broadly firm — building approvals rebounded, credit growth held steady, and house prices continued to rise — offering little reason for the RBA to shift from its current inflation-focused stance. Consumer spending remains tepid in per-capita real terms, but the full impact of elevated petrol prices on household budgets is yet to show up in the data.

All eyes now turn to the Iran deadline. The next 24 hours will determine whether markets get another reprieve, or something far worse.