U.S. Indexes surged and oil prices tumbled after the US and Iran agreed to a two-week ceasefire, alongside Iran reopening the Strait of Hormuz, easing immediate supply concerns. The sharp decline in crude drove a broad cross-asset reaction, with equities rallying, the Treasury curve steepening, and front-end yields falling as inflation expectations eased and Fed rate hike bets pulled back. However, uncertainty around the durability of the agreement remained high. Reports of continued attacks in Iran and Lebanon, alongside disputes over the terms of the ceasefire, raised doubts about its effectiveness. Iranian officials claimed multiple breaches of the agreement, while the US and Israel disputed these claims, and tanker disruptions briefly re-emerged after Iran reportedly restricted traffic through Hormuz again. Despite this, markets largely held onto the risk-on tone, albeit off the extremes. In FX, the Dollar weakened against G10 peers, with the Antipodes outperforming, as the Kiwi was also aided by a hawkish RBNZ, while precious metals were bid as the decline in oil reduced expectations of further Fed tightening. The FOMC minutes reinforced the recent hawkish hold, while highlighting two-sided risks to the outlook amid geopolitical uncertainty. Meanwhile, the 10-year auction was mixed, with a rebound in direct demand offset by softer indirect participation, suggesting domestic demand improved while foreign demand moderated. Overall, the session was driven by a sharp repricing of energy-linked inflation risk, with markets leaning towards a less hawkish Fed outlook, although ongoing geopolitical uncertainty continues to cap conviction. The minutes of the FOMC’s March policy meeting broadly validate the hawkish hold but show a more explicit debate over two-sided risks beneath the unchanged decision. The key message from participants was that officials were not yet ready to react mechanically to the oil shock from the US-Iran war, with most judging it too early to know how developments in the Middle East would affect the economy and policy. Even so, the vast majority said progress back to 2% could now be slower and the risk of inflation remaining persistently above target had increased, perhaps explaining why the Fed held rates steady despite lifting its 2026 inflation outlook in the March SEP. Almost all saw the Funds Rate as broadly within plausible estimates of neutral after last year’s 75 basis points of easing, and said policy was well placed to wait for more evidence on the implications of the energy shock. Given the heightened degree of economic uncertainty, policy was framed as data-dependent rather than on a preset path. The Minutes are firmer than the Statement on possible hikes, with some seeing a strong case for two-sided guidance and many saying persistently higher oil prices could justify rate rises if inflation remained elevated, though cuts would still be more likely if inflation eased as expected. On the other side of the mandate, most still saw the labour market as broadly balanced, but the vast majority judged risks to employment to be skewed to the downside, and most warned that a prolonged conflict could weaken sentiment and hiring enough to warrant cuts. On the Middle East, since the March meeting, participants have generally said that any short-lived oil shock could be looked through, while a more prolonged disruption would raise the risk of energy feeding into core inflation and expectations. Meanwhile, discussion of the US Dollar described the currency as volatile, but roughly unchanged on net, with safe-haven flows and net energy exporter dynamics offering support. Elsewhere, Oil closed a whopping 17% lower while Gold ended the day basically flat following a volatile trading session.
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