Markets remained dominated by Middle East headlines, but the narrative shifted from pure inflation fear towards a mix of recession concern, elevated volatility, and fading confidence in risk assets. Ceasefire talks between the US and Iran briefly improved sentiment, yet repeated reversals in the diplomatic story, alongside still‑high oil prices and rising import prices, kept traders cautious and pushed the VIX back above 30.
The US dollar held firm overall, with MUFG noting it outperformed most G10 peers, although the euro, pound, and yen were relatively more resilient than higher‑beta currencies.
The Australian dollar was the weakest major currency on the week as risk appetite faded, while sterling looked vulnerable to further downside and the Swiss franc began to attract more defensive interest.
USD/JPY remained near historic resistance levels as intervention risk from Tokyo limited further upside, even as broader dollar demand stayed intact.
Oil remained the central macro driver, but its tone turned more volatile than one‑way bullish. Ceasefire headlines triggered a near 10% drop in crude on Monday, yet prices later rebounded as negotiations faltered, leaving oil still elevated and highly sensitive to every geopolitical update.
Gold recorded its first weekly gain since the conflict started, rising alongside crude rather than against it, which may be seen as a sign that markets are shifting from an “inflation shock” mindset towards a more stagflation and growth‑sceptical one.
Grains also rebounded sharply, with the Bloomberg Grains Subindex up 12% year to date on drought concerns, energy and fertiliser disruption, and renewed speculative interest in wheat, corn, soybean meal and soybean oil.
Equities had another bruising week. The S&P 500 fell around 2.1%, the Nasdaq Composite dropped roughly 3.2%, and the Dow Jones Industrial Average lost about 0.9%, extending the S&P’s losing streak to five weeks and pushing both the Nasdaq and Dow deeper into correction territory.
Under the surface, early‑2026 rotation themes persisted: small caps, value stocks, and the average stock outperformed the cap‑weighted benchmarks, while technology and communication services remained the main drag.
Internationally, emerging markets continued to outperform developed peers, while overseas developed equities were broadly flat on the week.
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