Launch Pad

Data dump. Inflation in the U.S. remained firm in February, with the core PCE index rising 0.4% month-over-month and 3.0% year-over-year, matching expectations and signaling persistent underlying price pressures. While personal spending increased 0.5%, slightly below forecasts, and personal income unexpectedly declined -0.1%, pointing to some softening in household finances. The data suggests inflation is not cooling quickly enough to give the Fed confidence to cut interest rates in the near term. Real spending growth was modest, indicating consumers are still spending but with less momentum after adjusting for inflation. Jobless claims were somewhat mixed and GDP was revised slightly lower, suggesting the U.S. economy was already losing momentum before the Iran conflict intensified. Although there are no clear signs of a sharp downturn yet, the data indicates  consumers may be more vulnerable than previously thought. 

Flip flop. Hedge funds rapidly unwound bearish bets yesterday on U.S. stocks at the fastest pace since the 2020 pandemic rebound, following signs of a potential ceasefire in the Iran conflict. The shift reflects a sharp reversal from earlier positioning that anticipated further market declines amid rising oil prices and inflation risks. As funds buy back previously shorted stocks, this short squeeze helped drive a strong equity rally, with major indexes like the S&P 500 jumping more than 2.5% and the Nasdaq climb close to 3%. Strategists suggest this could mark a turning point in sentiment, moving markets from defensive positioning toward a more risk-on stance. However, some sectors that benefited from the war, such as energy and defense, may see near-term pullbacks as investors lock in gains. 

Tug of war… on the policy front. Minutes from the Fed’s March meeting showed that policymakers face a difficult balancing act as the Iran war creates conflicting economic risks. Officials see a potential slowdown in the labour market that could justify interest rate cuts, while at the same time rising energy prices are increasing inflation risks that could require rate hikes. The FOMC held rates steady at 3.5%–3.75% but discussed the possibility of needing to move policy in either direction depending on how conditions evolve. Most participants agreed that risks to both inflation and employment have increased, highlighting the uncertainty facing the economy. While projections still point to one rate cut this year, markets remain skeptical that easing will come anytime soon. 

The U.S. dollar erased its gains for 2026 after a ceasefire between the U.S. and Iran reduced demand for safe-haven assets and triggered a global risk rally. The Bloomberg Dollar Spot Index saw its biggest drop since January following the news, as investors moved into equities and other currencies like the euro and yen. The dollar had previously strengthened during the conflict due to its perceived safety and the relative resilience of the U.S. economy to energy shocks. With oil prices now falling on expectations of improved supply through the Strait of Hormuz, markets are reassessing inflation risks and increasing bets that the Fed may cut interest rates later this year. However, analysts caution that the move is largely driven by positioning and could reverse quickly if tensions escalate again. 

That’s one way to tackle the issue. China’s prolonged housing downturn is pushing millions of mortgages into negative equity, raising risks for both households and banks, but authorities are working to contain the fallout. Lenders are offering measures such as interest-only payments, payment holidays of up to two years, and loan extensions, while courts are slowing foreclosure proceedings to avoid a surge in forced sales. These actions are helping keep reported non-performing loan ratios low, masking underlying asset quality deterioration even as home prices in major cities have fallen, and negative equity exposures rise. While the banking system remains broadly resilient, supported by state backing and borrower disincentives to default, the current approach delays loss recognition. It also risks prolonging the adjustment, as excess housing supply and weak demand continue to weigh on the property market. 

Doh! New research suggests that microplastic pollution may have been significantly overestimated in some studies due to contamination from laboratory gloves (which happen to have a lot of microplastics). Scientists found that disposable gloves commonly used to prevent contamination, can shed microscopic that closely mimic real microplastics in chemical analysis. These particles produce nearly identical signatures to polyethylene, leading instruments to mistakenly count them as environmental pollution. In some cases, this contamination inflated measurements by up to 1,000 times, prompting researchers to back to the drawing board and re-evaluate past data. While the findings don’t eliminate concerns about microplastics, they highlight the need for improved testing methods. 

Copper and most industrial metals are lower after rising to a three-week high in the previous session, as the initial boost to risk appetite from the halt in hostilities faded. On the supply side, rising inventories continue to cast a shadow over the market. Copper inventories in LME-tracked warehouses have climbed to an eight-year high, suggesting that consumption remains muted despite the recent improvement in sentiment. While proxies for demand including gauges of global manufacturing remain resilient, they are likely to soften as elevated oil prices, disruption to the Strait of Hormuz, rising input costs and weaker confidence weigh on industrial demand.