Week commencing 23 March 2026

Energy prices and Fed policies weigh on US and Australian equities

United States (US) equity markets are set to close out this week lower for a fourth consecutive week. Elevated energy prices from the Middle East conflict and a cautious Federal Reserve (Fed) outlook have capped upside momentum. Stocks pared some session losses late in the week as geopolitical tensions eased slightly with oil retreating and diplomatic signals emerging. However, the broader narrative remains one of caution, with major indices trading below recent highs driven by geopolitical concerns and uncertainty over the path for interest rates.

Closer to home, the ASX 200 is trading 1.80% lower at 8462, on track for a third straight week of declines and down 8% for March overall. The index has been weighed down by global risk aversion spilling over from Wall Street and softer commodity prices, even as some relief came from oil's pullback towards the end of the week. With the Reserve Bank of Australia (RBA) having hiked rates again to 4.10% and sounding hawkish, local sentiment remains guarded ahead of the weekend.

The week that was: highlights

• The Fed held interest rates steady at 3.75% in a hawkish hold as policymakers upgraded inflation forecasts
• The US producer price index (PPI) surged 0.7% month-on-month (MoM) in February, significantly exceeding the 0.3% consensus, with Core PPI also beating expectations at 0.5%
• Initial jobless claims fell by 8000 from the prior week to 205,000
• China's industrial production surged 6.3% year-on-year (YoY) for the January – February period, well above the 5.1% consensus. Retail sales also showed strong growth, rising 2.8%
• Fixed asset investment in China (CN) recovered strongly, rising 1.8% YoY for January – February, significantly beating the -0.4% consensus
• Japan (JP) recorded a significant trade surplus of ¥57.3 billion in February, a massive turnaround from the prior deficit and far exceeding the ¥-483.2 billion consensus forecast
• The Bank of Japan (BoJ) kept rates on hold at 0.75% as expected. Governor Ueda's press conference, held during London hours, came across as modestly hawkish
• The euro area ZEW economic sentiment index plunged unexpectedly to -8.5 in March, a sharp decline from 39.4 prior and significantly missing the consensus of 24
• The European Central Bank (ECB) left its deposit rate unchanged at 2% as expected, but the updated staff projections and scenario analysis came with meaningful upward revisions to inflation
• The Bank of England (BoE) kept rates on hold at 3.75% as expected, but the overall delivery was more hawkish than expected
• The RBA raised its official cash rate by 25 basis points (bp) to 4.10% as expected and sounded hawkish
• The Australian jobs report for February proved mixed, with employment rising by a stronger-than-expected 48,900, beating the anticipated 20,000 gain. However, the unemployment rate ticked up to 4.3% from 4.1% prior
• New Zealand's gross domestic product (GDP) grew a modest 0.2% quarter-on-quarter (QoQ) in the fourth quarter (Q4), missing the 0.4% consensus forecast
• WTI crude oil fell 5.22% this week to $93.60, on track to snap a four-week winning streak
• The US dollar index, the DXY, fell 1.21% to 99.28
• Bitcoin fell 3.87% to $70,023
• Gold tumbled 7.46% to $4,645
• Wall Street's gauge of fear, the volatility index (VIX), dropped to 24.05 from 27.18 the previous week.

Key dates for the week ahead

Australia & New Zealand

• AU – consumer price index (CPI) February: Wednesday, 25 March at 11.30am AEDT

China & Japan

• JP – CPI February: Tuesday, 24 March at 10.30am AEDT
• JP – S&P purchasing managers' index (PMIs) Flash March: Tuesday, 24 March at 11.30am AEDT
• JP – BoJ Monetary Policy Meeting Minutes: Wednesday, 25 March at 10.50am AEDT

United States

• US – Fed Chair Powell Speech: Sunday, 22 March at 4.30am AEDT
• US – S&P PMIs Flash March: Wednesday, 25 March at 12.45am AEDT
• US – Initial jobless claims 21 March: Thursday, 26 March at 11.30pm AEDT
• US – Michigan consumer sentiment final March: Saturday, 28 March at 1.00am AEDT

Europe & United Kingdom

• EA – HCOB PMIs Flash March: Tuesday, 24 March at 8.00pm AEDT
• UK – S&P PMIs Flash March: Tuesday, 24 March at 8.30pm AEDT
• UK – CPI February: Wednesday, 25 March at 6.00pm AEDT

Key events for the week ahead

AU: CPI

Date: Wednesday, 25 March at 11.30am AEDT

For January, inflationary pressures rose at the start of the year, with headline CPI holding steady at 3.8% YoY in January, matching December but topping expectations of 3.7%. The RBA's preferred trimmed mean rose to 3.4% from 3.3%.

Key drivers included:

• Housing (up 6.8% YoY)
• Electricity (up 32.2% annually from subsidy unwind)
• Rents (up 3.9%)
• Medical services (up 4.2%)
• Goods inflation lifting to 3.8%
• Services easing slightly to 3.9%.

Looking to the February report, expectations point to headline inflation rising to around 3.9% YoY, with the trimmed mean anticipated to hold steady at 3.4%.

This release follows the RBA's hawkish rate hike to 4.10%, reflecting concerns about persistent inflation and upside risks from rising energy prices tied to the Middle East conflict. February's numbers will inform the RBA's thinking ahead of the May meeting but will be superseded by the March quarterly and first quarter (Q1) inflation update on 29 April, just before the 5 May decision.

The Australian rates market shows 18 bp of tightening now priced in for the RBA’s May Board meeting. Further out, 67 bp of hikes are priced in for the remainder of 2026.

This aligns closely with expectations for three more 25 bp increases this year, which would take the RBA’s cash rate to 4.85% – a level not seen in 17 years, dating back to November 2008.

Trimmed mean CPI YoY chart

US: S&P PMIs Flash

Date: Wednesday 25 March at 12.45am AEDT

In the latest February reading, the S&P Global US Composite PMI eased to 51.9 from 53.0 in January. This marks the slowest private-sector expansion in 10 months, reflecting softer demand, high prices, tariffs, and weather disruptions. Both the manufacturing (51.6) and services (51.7) sub-indices moderated, with new orders weakening and employment growth remaining marginal despite firmer business expectations.

The flash March print offers an initial snapshot of Q1 activity against ongoing energy price pressures and geopolitical uncertainty from the Iran conflict. Forecasts cluster around 51.5 to 52.0, suggesting continued modest expansion above 50 but with limited momentum. The US rates market is set to finish the week with traders seeing little chance of cuts before mid-2027, as inflation risks from the Middle East conflict keep the Fed sidelined.

US Composite Flash PMI chart

UK: CPI February

Date: Wednesday 25 March at 6.00pm AEDT

For January, headline CPI eased to 3% YoY from 3.4% in December, in line with expectations. Softer food, transport, and non-alcoholic beverages inflation helped offset stickier services pressures. Core inflation edged lower to 3.1% from 3.2%, its lowest level since August 2021.

Looking ahead to the February report, expectations point to headline inflation edging higher to 3.1% YoY, with the core measure also expected to edge higher to 3.2%. This comes before the recent surge in energy prices stemming from the Middle East conflict and the BoE’s interest rate meeting this week.

The BoE kept rates on hold at 3.75% as expected, but the overall delivery was more hawkish than expected on a 9 to 0 vote. The BoE scrapped all prior guidance and simply stated that the Monetary Policy Committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices. It stands ready 'to ensure that CPI inflation remains on track to meet the 2% target in the medium term'. The UK rates market ends the week pricing in 64 bp of BoE rate hikes over the duration of 2026.

UK Core CPI chart