The past week was again dominated by the Iran–US conflict, with markets riding a hope-and-disappointment cycle that began with a ceasefire announcement on 7 April and ended with the weekend's talks in Islamabad collapsing into stalemate. By Sunday, President Trump had declared a US naval counter-blockade of the Strait of Hormuz, pledging to interdict any tanker paying an "illegal toll" to Tehran — a marked escalation that sets up an abrupt mood reversal heading into this week's sessions.

Risk assets nonetheless delivered one of their strongest weeks of the year, and at least so far are holding on to most of those gains in the Asian trading session on Monday. The Nasdaq 100 added 4.7%, with the  S&P 500 not far behind while the Nikkei surged more than 7%, and the ASX 200 rose 4.4% despite giving a little back on Friday and Monday. European bourses were mixed, with the Euro Stoxx 50 up 3.4% on the week even as the DAX slipped on Friday's profit-taking. Emerging markets, however, were the top performers with other cyclical asset calls, global small caps, also rising strongly. The rally was built almost entirely on the collapse of the war premium: Brent fell roughly 13% to finish near US$95 a barrel, having briefly traded sub-$90 on ceasefire headlines, while WTI settled around US$98 after peaking close to US$118 the prior week. Interestingly this takes most markets very close to where they were at the end of February, implying that markets see no lasting ill-effects. Either that or liquidity provision by central banks and sovereign treasuries have also had a pervasive effect.   

Rates told a more nuanced story. US 10-year Treasuries drifted up four basis points on Friday to 4.345%, with the week's range (4.275–4.345%) pointing to a market that has largely priced the Fed out of the cutting cycle — futures markets now embed just six basis points of easing in the US through December, with most of that back-loaded. European yields rose more aggressively on Friday (UK, France and Germany all up 7–10bp) as traders pared back the ECB's implied hiking path to roughly 53bp by year-end, down from 74bp earlier in the week. Australian 10-years finished at 4.96% and New Zealand's curve steepened further on Governor Brennan's unusually hawkish "decisive and timely" language. Japan's strong February wages data (base pay for full-timers +3.7%, the firmest since 1994) has tightened the case for a BoJ move on 28 April.

The data flow reinforced the divergence theme. US headline CPI jumped 0.9% on the month (gasoline +21.2%), lifting the annual rate to 3.3%, while core printed a softer 0.2% — the Fed can still argue the shock is confined to energy. The University of Michigan survey told a different story: sentiment slumped to 47.6 and one-year inflation expectations leapt from 3.8% to 4.8%. China's PPI rose 1.1% month-on-month, breaking 41 consecutive months of factory-gate deflation, though consumer prices remain subdued at 1.0% year-on-year.

FX reflected the softer-dollar, risk-on tone: the DXY shed 1.4%, gold eased 0.6% after earlier gains, and the Australian dollar rallied 2.5% to around 70.6 US cents. Politically, Sunday's Hungarian election delivered a supermajority to Péter Magyar's Tisza party, ending Viktor Orbán's sixteen-year rule, a further data point in Europe's shifting political map.

The week ahead pivots on how aggressively the blockade is enforced and whether limited vessel flows through Hormuz continue. The start of the US earnings season might provide a welcome distraction for markets although corporate guidance may still reflect uncertainty in the Middle East as supply issues start to affect economies and companies around the world.