U.S. Indices closed lower while Treasury Yields rose in response to further upside in oil prices in response to an Israeli attack on the South Pars gas facility, the largest in the world. Oil gave back some of its gains as the EU’s Kallas and the Iranian Foreign Minister spoke, but that swiftly pared as Qatar announced the Ras Laffan Industrial complex was attacked with extensive damage. Meanwhile, Israel targeted Iranian navy ships in the Caspian Sea. These reports took oil prices higher post-settlement, supporting the US Dollar, weighing on stocks and boosting yields. Also contributing to the moves was Fed Chair Powell. The Fed left rates on hold as expected in an 11-1 vote split, while dot plots were largely unchanged, with little reaction seen. However, alongside the aforementioned updates, Powell noted how the Fed will not look through energy-induced inflation lightly, while stating that rate hikes in the future were discussed, but caveated that it is not the base case of the vast majority of the Fed. The geopolitical escalations and hawkish-leaning Powell supported the Dollar, while stocks and bonds moved lower, all while oil accelerated with Brent breaching USD 110/barrel at pixel time. Elsewhere, US PPI data was hot, and the Bank of Canada left Interest Rates on hold as expected. Amid the stronger USD on the above themes, precious metals were weighed, with gold falling below USD $5000/oz to ~ USD 4,835 and silver to around USD 76/oz. The FOMC maintained rates at 3.50-3.75%, with no change to the forward-guidance sentence on considering “the extent and timing of additional adjustments” or to its commitment to maximum employment and 2% inflation. On the vote, only Miran dissented in favour of lower rates. Some had expected him to be joined by Waller again, while others had suggested Bowman could also join the dissenters in calling for a rate cut. The March statement left the economic assessment broadly unchanged, except that “the unemployment rate has shown some signs of stabilisation” was replaced with “the unemployment rate has been little changed in recent months”. However, “economic activity has been expanding at a solid pace”, “job gains have remained low”, and “inflation remains somewhat elevated” were unchanged. In its risk assessment, January’s reference that “uncertainty about the economic outlook remains elevated” was retained, while March added that “the implications of developments in the Middle East for the US economy are uncertain.” Balance-sheet and implementation guidance were also unchanged. Fed Chair Powell’s press conference leaned hawkish, despite the SEP median dots remaining unchanged. His main concern was clearly inflation persistence rather than growth weakness. He repeatedly stressed the need to see further progress in goods disinflation, flagged frustration over sticky non-housing services and made clear that, if inflation progress does not resume, cuts will not follow. He also sounded wary of fresh upside inflation risks from tariffs, which he continues to see playing out by mid-year, as well as from oil and the Middle East. The key point was that energy can be looked through only if inflation expectations remain anchored, but it would not be looked through lightly. Powell said a number of officials had noted that short-term inflation expectations had risen, while long-term inflation expectations were “solid”, adding that the Fed was strongly committed to keeping inflation expectations anchored around target. On rates, Powell kept optionality but did not open the door to near-term easing. He said policy was in a good place, noting it was around the high end of neutral, or only modestly restrictive, suggesting the hurdle for cutting remained evidence-based rather than pre-emptive. He also pointed to a meaningful shift within the Committee towards fewer cuts and said a hike was discussed at the meeting but stressed that the “vast majority” did not see that as the base case. Finally, Powell said the labour market was being watched closely, particularly weak private payroll growth, but stopped short of suggesting employment risks now dominate the Fed’s policy balance. Headline PPI rose 0.7% M/M, above the 0.3% forecast and matching the highest analyst estimate, accelerating from the prior 0.5%. This saw the Y/Y accelerate to 3.4% from the 2.9% prior and consensus, matching the highest analyst forecast. The core M/M rose 0.5%, cooling from the prior 0.8%, while the Y/Y rose 3.9%, accelerating from the 3.6% prior and above the 3.7% forecast. The super core (ex food, energy and trade), rose 0.5% M/M, also above the 0.3% forecast and prior, while the Y/Y rose 3.5%, above the 3.3% forecast and 3.4% prior. Within the report, the PCE components leaned slightly hotter than the January report, with portfolio management fees cooling, air passenger transport rising marginally, and physician care easing. Home health and hospice care, and outpatient and inpatient care accelerated. Oxford Economics highlight that the increase in food and energy prices pushed the headline to its highest level since February 2025, and there are upside risks ahead as the spike in oil prices means food and energy goods, along with transportation services, will likely see larger price increases in the next PPI report. Oxford Economics’ PCE tracking nowcast “points to a 0.4% rise in both headline and core prices. This will keep headline PCE inflation steady at 2.8% and help core inflation inch lower to 3.0% from 3.1% in January”. Elsewhere, Oil closed flat following another volatile trading session while Gold was hit hard, ending Wednesday’s session with a 2.5% fall.
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