Relief rally reverses as U.S.-Iran tensions reignite

Summary

Last week in markets

Equities extended their gains, with the S&P 500 rising 3.58% for a second consecutive week. Treasury yields moved higher midweek following news of a temporary ceasefire between the U.S. and Iran. The 10-year yield closed at 4.31%. Oil prices declined to approximately $94 per barrel as immediate supply concerns eased. Over the weekend, U.S. officials held ceasefire talks with Iran, but negotiations ended without an agreement, leaving uncertainty elevated heading into the new week.

U.S. moves to restrict Iranian oil flows

Following the breakdown in negotiations, the U.S. moved to restrict Iranian oil exports, increasing pressure on a critical global supply route. The action tightens flows through the Strait of Hormuz and has led to a rapid repricing in energy markets. Oil prices, which had fallen on ceasefire expectations, moved back above $100 per barrel. The 7% to 8% single-session increase reflects renewed supply risk and expectations for tighter conditions.

March CPI rises on energy-driven inflation

March inflation accelerated, with headline CPI rising 3.3% year over year, the highest level in two years. Energy drove the increase. Gasoline prices rose nearly 19% annually, and broader energy costs increased 12%. Core inflation was more stable at 2.6%, indicating underlying pressures remain relatively contained. This divergence matters. Energy volatility is driving near-term inflation, but sustained cost increases could begin to pass through more broadly. Markets responded quickly, with rate volatility rising and expectations for near-term policy easing moving lower.

Consumer sentiment signals growing concern

Consumer sentiment declined sharply, with the University of Michigan’s preliminary April reading falling to 47.6, the lowest level on record. The drop reflects rising concern that geopolitical tension and higher energy costs will weigh on economic conditions. Both short- and long-term inflation expectations increased, raising the risk that expectations become less anchored. While the survey predates recent ceasefire developments, it points to weakening consumer confidence. If sustained, that could begin to weigh on spending. For markets, the signal is clear: inflation pressures are rising as confidence softens. That combination creates a more complex path forward, particularly as real income growth comes under pressure.

The week ahead

This week’s data will help clarify how inflation pressures are evolving and whether growth is beginning to slow. March PPI, released April 14, will show whether higher energy prices are moving through to input costs. Import and export prices on April 15 will provide a clearer view of traded goods inflation. Housing indicators, including NAHB sentiment and housing starts, alongside industrial production, will offer insight into cyclical momentum. With retail sales delayed until April 21, these interim releases will carry more weight. Together, they will help markets assess a central question: are inflation pressures proving persistent, or is demand beginning to moderate? At the same time, geopolitical developments remain critical. Markets will continue to watch Iran closely for signs of escalation or renewed negotiations, with direct implications for energy prices and broader risk sentiment.