Daily Observation 2026-03-25

Note

On Tuesday, markets remained focused on developments surrounding the United States, Iran, and Israel, particularly across diplomatic engagement, ongoing military actions, and regional security arrangements. U.S. President Donald Trump stated that progress had been made in efforts to end the conflict with Iran, including securing what he described as a meaningful concession from Tehran. At the same time, multiple media outlets reported that Washington had submitted a 15-point proposal aimed at de-escalation. Trump also noted that the U.S. is in contact with “appropriate counterparts” in Iran, while Tehran denied any direct negotiations. Meanwhile, military activity involving the U.S., Israel, and Iran continues, with reports indicating that additional U.S. forces may be deployed to the region. Separately, Iran has informed the United Nations Security Council and the International Maritime Organization that “non-hostile vessels” may transit the Strait of Hormuz subject to coordination with Iranian authorities.

At the strategic level, broader signals have emerged from U.S. policy. The Under Secretary of State for Arms Control and International Security indicated that the U.S. is assessing how to implement the President’s directive on resuming nuclear weapons testing. While no discussions have taken place regarding atmospheric testing, the possibility of renewed underground testing has not been ruled out. This suggests that, beyond the immediate regional conflict, markets are also facing an evolving backdrop in higher-level security and deterrence policy.

On the macro side, preliminary March PMI data from the U.S., Europe, and Japan showed a moderation in business activity across major economies. The eurozone composite PMI declined from 51.9 to 50.5, marking a 10-month low. The U.S. composite PMI output index fell from 51.9 to 51.4, the lowest since April last year and the second consecutive monthly decline. Japan’s composite PMI also eased from 53.9 to 52.5, indicating the slowest pace of expansion in three months. At the same time, Federal Reserve communication remains centered on inflation and the policy path. Governor Barr stated that rates may need to remain unchanged for some time before any further easing, while Chicago Fed President Goolsbee emphasized that additional progress on inflation is required before rate cuts can be realistically considered. Revised U.S. data showed fourth-quarter nonfarm productivity downgraded from 2.8% to 1.8%, while unit labor costs were revised up from 2.8% to 4.4%. Taken together, these developments point to a backdrop where growth is moderating, cost pressures persist, and policy easing lacks near-term certainty.

The significance of these developments for financial markets lies not in any single headline, but in how they simultaneously affect three core channels: energy supply expectations, the inflation path, and monetary policy pricing. Developments in the Middle East directly shape expectations around oil and LNG transport flows, particularly given the central role of the Strait of Hormuz. The decline in PMIs suggests that business activity, orders, costs, and expectations are already adjusting to the current environment. Meanwhile, the combination of cautious Fed communication, weaker productivity, and higher unit labor costs makes it more difficult for markets to re-establish a “rapid easing” framework. In effect, markets are not dealing with an isolated geopolitical event, but with a layered structure defined by energy shocks, slowing growth, and the possibility of rates remaining elevated for longer.

Within this framework, asset sensitivities diverge. SPX faces pressure across margins, valuation multiples, and risk appetite. DXY finds support from both relative rate expectations and allocation dynamics under elevated uncertainty. US02Y remains closely tied to the repricing of the near-term policy path, reflecting a shift toward delayed rate cuts. US10Y is more complex, incorporating both growth expectations and inflation persistence, and is therefore more likely to exhibit elevated volatility. UKOIL and USOIL continue to trade around the presence or absence of a supply risk premium, with pricing driven by whether disruptions are perceived as sustained or reversible. GOLD remains caught between opposing forces: geopolitical risk and safe-haven demand on one side, and the influence of the dollar and real rates on the other.

Taken together, the current environment resembles a structure in which oil and front-end rates remain firm, the dollar is supported, equities face pressure, gold trades with elevated volatility, and long-end yields are determined by whether markets place greater weight on inflation persistence or growth slowdown. The key variable ahead is not any single data point or headline, but which narrative the market ultimately anchors to: supply-driven inflation dynamics, or demand-driven deceleration. That choice will define the next phase of cross-asset repricing.

Market

	CLOSE
SPX	6556.37
DXY	99.182
US10Y	4.368%
US02Y	3.904%
UKOIL	99.90
USOIL	88.38
GOLD	4469.880

2026-03-24T09:00Z/2026-03-24T23:00Z