Brent crude oil prices are consolidating near yesterday’s lows around $96 a barrel. The rally in stocks and bonds paused, while the dollar’s decline stabilized. Hopes for a diplomatic off-ramp to the US-Iran war continues to support the recovery in financial market sentiment. The US and Iran are looking to arrange a second round of peace talks in the coming days. Despite the encouraging news headlines, we are under no illusion that the conflict itself may continue indefinitely.
Regardless, for markets the key issue is not the war’s duration but whether both countries can reach a deal that will no longer impede freedom of navigation for vessels transiting the Strait of Hormuz. We are sympathetic to the US “Open for All or Closed to All” approach because shared economic pain is more likely to accelerate a reopening of the Strait.
The IMF published yesterday its World Economic Outlook titled: Global Economy in the shadow of War. As they previously flagged, the IMF downgraded global GDP growth by 0.2pts to 3.1% in 2026 and stressed that “risks are firmly on the downside.”
Downside risks include: (i) Further intensification of conflicts and eruption of domestic political tensions, (ii) Overly optimistic AI-driven profitability projections, (iii) Disruption of the fragile balance of current trade policies, (iv) Repricing of borrowing costs triggered by fiscal vulnerabilities, and (v) Erosion of confidence in economic institutions.
The IMF considered two downside scenarios:
(i) Adverse scenario. Assumes crude oil prices average $100 per barrel in 2026. Global growth would be reduced by 0.8pts to 2.5% in 2026.
(ii) Severe scenario. Assumes crude oil prices average $110 per barrel in 2026. Global growth would be reduced by 1.3pts to 1.8% in 2026, indicative of a global recession (growth rate below 2%).
Markets are already looking beyond the IMF’s gloomier forecast and trading the recovery narrative. We agree. While the energy shock may not be over, the worst is probably behind us. If so, March 30 likely marked the bottom in risk sentiment. That would leave DXY (USD index) trading off rate differentials once again, keeping the currency within its nearly one-year 96.00-100.00 range over the next few months.
Today’s US data prints are unlikely to generate material financial market volatility. April Empire manufacturing, March import/export price indexes, April NAHB housing market index, Fed Beige Book, and February TIC flows. Plenty of central bank speakers are also on the docket, but with their last meetings still fresh, we don’t expect new policy guidance.
