2 April 2026
Weekly Market View
Inching towards a stalemate
US President Trump’s plan to end military operations in the Middle East within 2-3 weeks has eased fears of a drawn-out conflict. However, uncertainty remains about a near-term escalation in the conflict and when normal shipping through the Hormuz Strait will resume.
Trump stated the responsibility for reopening the strait now falls to Asian and European governments, whose economies depend heavily on Gulf energy supplies. This signals tough negotiations ahead.
In this environment, we prefer investments in quality stocks with robust profit margins and earnings moats, especially within technology and utilities sectors.
We also see opportunities to secure elevated yields in US government and high-grade corporate bonds. As focus shifts from short-term inflation driven by higher oil prices to medium-term risks for growth and employment, these strategies are expected to outperform.
Bullish US equities – history shows elevated VIX levels followed by strong returns
Bullish US aerospace and defence equities – airline recovery, defence spending
Bearish USD/JPY – JPY to benefit from BoJ rate hikes to counter inflation pressures
Charts of the week: Growth vs inflation concerns
Markets starting to price easing stagflation risks (see shaded area LHS) as long-term inflation expectations stay anchored
S&P500 index (up), US 2y yield (down), USD index (down)
US 1-year and 1y1y inflation expectations; Fed inflation target*
Source: Bloomberg, Standard Chartered; *2.3-2.5% inflation expectations based on CPI is consistent with the Fed’s 2% PCE inflation target
Editorial
Inching towards a stalemate
Strategy summary: US President Trump’s plan to end military operations in the Middle East within 2-3 weeks has eased fears of a drawn-out conflict. However, uncertainty remains about a near-term escalation in the conflict and when normal shipping through the Hormuz Strait will resume. Trump stated the responsibility for reopening the strait now falls to Asian and European governments, whose economies depend heavily on Gulf energy supplies. This signals tough negotiations ahead.
In this environment, we prefer investments in quality stocks with robust profit margins and earnings moats, especially within technology and utilities sectors. We also see opportunities to secure elevated yields in US government and high-grade corporate bonds. As focus shifts from short-term inflation driven by higher oil prices to medium-term risks for growth and employment, these strategies are expected to outperform.
Inching towards a stalemate: President Trump’s intention to wind down Middle East military operations aligns with our base scenario of a brief conflict. Our ‘pain indicator’, which combines US equity and bond indices with presidential approval ratings, last week signalled a high likelihood of de-escalation after crossing a key threshold. However, reports of increased US troop deployments sustains the risk of renewed hostilities. The geopolitical situation therefore remains fluid, with escalation still possible, even as official statements lean towards resolution.
Demand for ‘high moats’: Amid heightened uncertainty, we prefer technology and utilities sectors that feature a concentration of high-quality stocks with strong margins and earnings. The US technology sector, in particular, offers attractive valuations. The recent market downturn has reduced the sector’s forward price/earnings (P/E) premium to the S&P 500 index to below 5%, its lowest since January 2019 and down from a 35% premium in October 2025. Historical data shows that when the premium falls within the 4–6% range, returns over the next 3, 6, and 12 months have averaged 5%, 13%, and 19.7% respectively. The upcoming US Q2 corporate earnings season may support a recovery, especially if Middle East
tensions ease. A diversified portfolio anchored by these sectors is expected to weather volatility and deliver strong medium-term performance.
Chance to lock in elevated bond yields: There are early signals policymakers and bond markets are starting to focus more on the conflict’s impact on economic growth than on inflation. Fed Chair Powell stated this week that the central bank can look past a temporary spike in oil prices as long as inflation expectations are steady. This led to a retreat in the US 2-year government bond yield, which reacts to rate changes. The renewed emphasis on supporting growth strengthens our base case that the Fed will eventually cut rates in H2 to revive the job market. Locking in the currently elevated yields on high-quality bonds offers a favourable risk-reward trade-off.
Risk of a prolonged shutdown of Hormuz Strait: Even if the US withdraws its forces from the Middle East this month, Trump’s proposal for Asia and Europe to negotiate with Iran about reopening Hormuz Strait traffic may result in protracted talks. Iran’s parliament has passed legislation allowing the government to levy tolls on all vessels passing through the strait. With more than 80% of oil and gas shipped via the strait destined for Asian economies (China, India, Japan, South Korea), these nations must work with Iran and Gulf producers to establish a lasting transit agreement. Prediction markets currently give only a 14% chance that shipping traffic will return to normal by the end of April, reflecting ongoing uncertainty.
Hedging against risk of higher oil and gas prices: If the Hormuz Strait remains closed for long, energy prices are likely to rise. The strait normally accounts for c. 20% of global oil supply, but rerouting Saudi and UAE crude through alternative pipelines, releasing strategic reserves, and Iran’s continued exports have temporarily cut the global shortfall to 8%. Still, without a quick resolution, oil prices are likely to rise as strategic reserves and floating stockpiles dwindle in a few weeks and supply struggles to match demand. To hedge against this risk, oil price-linked structured strategies, energy sector equities and US inflation-protected bonds remain prudent choices.
— Rajat Bhattacharya
The weekly macro balance sheet
Our weekly net assessment: On balance, we see the past week’s data and policy as neutral for risk assets in the near-term
(+) factors: Resilient US manufacturing (mfg.) data and China activity; less hawkish Fed; likely easing of conflict
(-) factors: Weak US job data; likely BoJ hike; Hormuz strait uncertainty
US ISM manufacturing PMI strengthened in March, while the prices paid sub-index rose to the highest level since June 2022, signalling accelerating input cost inflation
US ISM manufacturing and manufacturing prices paid indices, US ADP private sector payrolls
Euro area headline inflation accelerated to 2.5% y/y in March, driven by a sharp rise in energy prices
Euro area headline and core consumer inflation
China’s factory activity growth returned to positive territory, with manufacturing and non-manufacturing PMIs rising above expectations
China manufacturing and non-manufacturing PMIs
Top client questions
What are EU CPI and comments from Fed Chair Powell this week telling us about the likely ECB and Fed policy pathways?
Our view: Given our base-case view of a relatively short period of high oil prices, we expect the ECB to keep rates unchanged but hold a hawkish bias. We see the Fed resuming policy rate cuts in H2 2026 as it refocuses on labour-market weakness.
Rationale: The Eurostat flash estimate showed Euro area headline inflation rising to 2.5% y/y in March, from 1.9% in February. This increase was driven by a 4.9% surge in energy prices, directly linked to the Middle East conflict. While we anticipate the ECB will keep policy rates on hold through 2026, the key risk scenario is an extended conflict that keeps energy prices elevated for several months and pushes inflation towards 4%. Given a tight labour market, this could force the ECB to hike rates. That said, any energy‑price‑driven inflation spike is likely to be self‑limiting, as it ultimately erodes disposable incomes and weighs on growth.
Meanwhile, in the US, Fed Chair Powell’s 30 March remarks at Harvard noted that the Fed is in a “good place” to “wait and see” how the Iran crisis affects the economy and inflation. He said that policymakers can “look through” temporary oil‑price shocks. This reinforces our view that the Fed will remain on hold in H1 2026, despite inflation remaining above target. We expect the Fed to resume policy rate cuts in H2 2026 as the Middle East conflict de‑escalates and attention shifts back to labour‑market weakness.
— Ray Heung, Senior Investment Strategist
Markets have repriced policy rate expectations higher in the US and the Euro area since the Middle East conflict began
Market-implied policy rates for the US and Euro area by year-end 2026
How would an extended Middle East conflict affect your Overweight views on Emerging Market (EM) government bonds and Developed Market High Yield (DM HY) bonds?
Our view: While not our base case, an extended Middle East conflict scenario would pose a downside risk to EM govt. bonds (both local-currency and USD) and DM HY corporate bonds.
Rationale: While not our base case, a prolonged Middle East conflict scenario would generate higher inflationary pressures and slow global economic growth. Higher commodity costs would strain external balances, currencies and fiscal positions in oil‑importing EM economies. While individual EMs may still do well in this scenario, a broad EM overweight view would face downside risk. DM HY corporate bonds would face similar headwinds, as elevated energy costs compress margins (particularly in cyclical and consumer‑facing sectors), raising default risks amid slowing growth. Although the energy sector may benefit, it represents less than 10% of the overall DM HY universe. In a risk‑off environment, DM HY yield premium spreads would likely widen.
— Ray Heung, Senior Investment Strategist
EM USD & local currency (LCY) government bonds, US HY bonds have fallen since the onset of the Middle east conflict
Total index return of US HY corporate bonds and EM USD and LCY government bonds, rebased. Brent crude oil price (inverted)
Top client questions (cont’d)
What drove US aerospace & defence (A&D) equity weakness? What are the key sector catalysts and risks?
Our view: A&D sector consolidation provides an opportunity to add amid supportive fundamentals.
Rationale: The retreat in the A&D sector since March has been largely driven by three factors. First, the prolonged conflict has forced US airlines to scale back Middle East operations, a critical global transport hub routing approximately 30% of Asia-Europe air cargo. Second, the spike in oil prices is expected to compress profit margins across major airlines, as most US carriers have abandoned fuel hedging. Third, much of the short-term anticipated upside from rising military equipment demand linked to the Middle East conflict appears to have been priced in.
That said, we retain a positive view on the sector. Our base case remains for the conflict to de‑escalate in a few weeks, supporting a recovery in commercial aerospace activity and easing oil prices. In addition, geopolitical developments since 2026 suggest a potential ramp‑up in US diplomatic engagement ahead of the midterm elections and renewed focus on defence priorities. President Trump announced military spending of USD 1.5trn for 2027, a 50% increase from this year’s budget. 12‑month forward earnings growth of over 40% also provides a strong tailwind for a sustained sector recovery.
— Michelle Kam, CFA, Investment Strategist
Aerospace & Defence sector equities likely to gain, driven by solid earnings growth
US Aerospace & Defence Index and its 12-month forward earnings growth
Has Japan’s recent soft data changed your Bank of Japan (BoJ) policy rate expectation? What is your view on USD/JPY?
Our view: Recent data has not altered our expectation that BoJ rates are likely to reach 1.25% by 2026 year-end. We remain bearish on USD/JPY.
Rationale: Tokyo’s March inflation cooled slightly to 1.4% y/y, its slowest pace in nearly two years, driven primarily by a moderation in food costs. Consumer prices, excluding fresh food, rose by 1.7% y/y, marking the smallest increase since April 2024. However, the BoJ has indicated that this slowdown is likely temporary, with the Middle East conflict, in particular, posing inflationary risks. We see BoJ rates reaching 1.25% by year-end 2026.
Meanwhile, we expect USD weakness to resume, especially if President Trump indeed follows through on his comments to end the conflict soon. Additionally, US consumer confidence unexpectedly rose to 91.8 in March, from 91.0, but the measure of expectations for the next six months fell.
Technically, USD/JPY is forming a significant resistance zone at 160-161. We see the pair facing downside risk, with support at 155.9 (200-day moving average) in the coming week.
— Iris Yuen, Investment Strategist
USD/JPY is exposed to downside risk
USD/JPY and technicals
Top client questions (cont’d)
How significant a risk is helium supply for the semiconductor sector? What are the likely catalysts for a turnaround in sector sentiment?
Our view: We see helium supply as a manageable risk in the near term. We remain positive on global semiconductors, driven by sustained AI capital expenditure (capex), which should be reiterated in the Q1 2026 earnings season.
Rationale: Helium is essential in semiconductor manufacturing processes, primarily due to its cooling properties. The ongoing closure of the Strait of Hormuz is significantly disrupting global helium supply, given Qatar accounts for 25% of global reserves. Our supply-chain checks for the semiconductor industry suggest that there is sufficient inventory for about 3-6 months, limiting the risk of severe near-term disruptions. The most immediate impact is likely via price escalation. Helium accounts for about 0.3% of a semiconductor wafer’s cost. During the Russia-Ukraine conflict, neon prices surged nearly 10x in early 2022, so a similar price spike in helium would erode profit margins for semiconductor producers.
A reopening of the Strait of Hormuz would be a positive catalyst for the chip industry, as supply chain concerns would ease. In addition, we expect the upcoming Q1 2026 earnings season to reiterate strong AI capex plans, which would be a fundamental catalyst for the semiconductor industry to move higher.
— Fook Hien Yap, Senior Investment Strategist
Qatar holds the largest reserve of helium globally, but we expect inventory levels to be sufficient to cope with near-term supply disruptions
Distribution of helium reserves globally
How have US equities performed historically in the ensuing 12 months after the Volatility Index (VIX) hit 30, 40 and 50+?
Our view: The VIX closing above 30 signals market stress, but such episodes have historically been short-lived, preceding strong recoveries – with S&P500 forward 12-month returns averaging 29%, far above the 14% long-term average.
Rationale: The CBOE VIX closing above 30 last week rekindled market volatility concerns. Historically, the 30-level threshold signalled market dislocation; since 2016, the VIX has closed above 30 on around 6% of trading days, primarily during the 2020 pandemic and the 2022 inflationary drawdown. That said, it is important to note that such episodes of heightened uncertainty have historically proven short-lived, absent extreme macroeconomic conditions.
When the VIX closed above 30, the S&P500 has historically delivered average 12-month forward returns of 29%. This rises to 52% and 57% when the VIX surpasses 40 and 50, respectively – well above the unconditional 10-year average of 14%.
— Jason Wong, Senior Equity Analyst
The S&P500 VIX index closing above the 30 level has historically been short-lived and has preceded strong recoveries
VIX and S&P500 Index 12-month forward return
Market performance summary*
Our 12-month asset class views at a glance
Economic and market calendar
The S&P500 has next interim resistance at 6,879
Technical indicators for key markets as of 1 Apr close
Investor diversity has normalised across asset classes
Our proprietary market diversity indicators as of 1 Apr close
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Taiwan: SC Group Entity or Standard Chartered Bank (Taiwan) Limited (“SCB (Taiwan)”) may be involved in the financial instruments contained herein or other related financial instruments. The author of this document may have discussed the information contained herein with other employees or agents of SC or SCB (Taiwan). The author and the above-mentioned employees of SC or SCB (Taiwan) may have taken related actions in respect of the information involved (including communication with customers of SC or SCB (Taiwan) as to the information contained herein). The opinions contained in this document may change, or differ from the opinions of employees of SC or SCB (Taiwan). SC and SCB (Taiwan) will not provide any notice of any changes to or differences between the above-mentioned opinions. This document may cover companies with which SC or SCB (Taiwan) seeks to do business at times and issuers of financial instruments. Therefore, investors should understand that the information contained herein may serve as specific purposes as a result of conflict of interests of SC or SCB (Taiwan). SC, SCB (Taiwan), the employees (including those who have discussions with the author) or customers of SC or SCB (Taiwan) may have an interest in the products, related financial instruments or related derivative financial products contained herein; invest in those products at various prices and on different market conditions; have different or conflicting interests in those products. The potential impacts include market makers’ related activities, such as dealing, investment, acting as agents, or performing financial or consulting services in relation to any of the products referred to in this document. UAE: DIFC – Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18.The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Standard Chartered Bank, Dubai International Financial Centre having its offices at Dubai International Financial Centre, Building 1, Gate Precinct, P.O. Box 999, Dubai, UAE is a branch of Standard Chartered Bank and is regulated by the Dubai Financial Services Authority (“DFSA”). This document is intended for use only by Professional Clients and is not directed at Retail Clients as defined by the DFSA Rulebook. In the DIFC we are authorised to provide financial services only to clients who qualify as Professional Clients and Market Counterparties and not to Retail Clients. As a Professional Client you will not be given the higher retail client protection and compensation rights and if you use your right to be classified as a Retail Client we will be unable to provide financial services and products to you as we do not hold the required license to undertake such activities. For Islamic transactions, we are acting under the supervision of our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in the Islamic banking section. For residents of the UAE – Standard Chartered UAE (“SC UAE”) is licensed by the Central Bank of the U.A.E. SC UAE is licensed by Securities and Commodities Authority to practice Promotion Activity. SC UAE does not provide financial analysis or consultation services in or into the UAE within the meaning of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis. Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.