Hopes for negotiated Iran settlement fade

For the week ending 27 March 2026

As of midday Friday, global equities were lower on the week after mid-week optimism over a potential ceasefire in Iran faded. The yield on the U.S. 10-year note continued to rise, jumping 13 basis points to 4.45%. The price of a barrel of West Texas Intermediate crude oil held steady at US$97. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 25.7 from 23.8 last week.

Iran crisis

Iran rejects U.S. 15-point peace plan

This week, the U.S. sent a document through intermediaries that laid out a series of preconditions to end the war with Iran. According to the Wall Street Journal, these conditions include: Iran dismantling its main nuclear sites and ending any enrichment of uranium on Iranian soil; suspending its ballistic-missile work; curbing support for proxies; and fully reopening the Strait of Hormuz. In return, Iran would have nuclear-related sanctions lifted.

On Thursday, Iran rejected the plan, saying U.S. “aggression and assassinations” must end, the U.S. must guarantee that the war will not be restarted, and that Iran will retain control over the Strait of Hormuz. It is uncertain whether Iran’s public statements align with possible backchannel talks by regime members. During a cabinet meeting on Thursday, President Trump said Iran was allowing 10 Pakistani tankers to pass through the Strait as a show of good faith. Morgan Stanley estimates that as many as a dozen tankers have passed through the chokepoint this week — a clear uptick.

Should diplomatic efforts fail, the U.S. is reportedly readying potential military actions to end the war, including seizing or blockading Kharg Island, Iran’s main oil export terminal; invading Larak, and another strategically-located island near the Strait of Hormuz; and blockading or seizing ships transporting Iranian oil on the eastern side of the Strait.

Iran’s attack on joint U.S.–U.K. airbase on Diego Garcia, an island in the Indian Ocean thought to be well beyond the reach of Iran’s missiles, drew significant attention this week, as the attack demonstrated that Iranian missiles could reach much of Europe. Amid Iran’s continuing strikes on infrastructure targets in neighbouring countries, U.S.-allied Gulf states are considering entering the war.

Late Thursday afternoon, Trump extended the pause on strikes on Iranian energy infrastructure he put in place last weekend until April 6, saying talks are “going very well.”

In addition to a second Marine Expeditionary force and elements of the 82^nd Airborne Division being deployed to the Middle East, the U.S. is reportedly considering sending an additional 10,000 combat troops in the coming days.

 

Quick hits

• Amid ongoing tumult in the Middle East, PMI data showed that input prices rose across developed markets, especially in Europe, where they jumped more than 10%. Supplier delivery times lengthened as well, suggesting supply chain stress. Price pressures in the U.S. were less pronounced.
• President Trump’s summit with China’s XI Jinping has been rescheduled for May 14 and 15 in Beijing.
• On Thursday, the European Parliament approved the trade deal between the European Union and the U.S. by a vote of 417 to 154.
• Prices of memory chip makers fell this week on news that an algorithm developed by Google can cut the amount of memory required to run large language models by at least a factor of six. The breakthrough could alleviate memory chip shortages and reduce the cost of deploying AI.
• Rengo, Japan’s umbrella body of labour unions, released their initial report of FY26 wage negotiations, resulting in an average raise of 5.26%. Overall, the report signals that Japan’s wage dynamics remain robust.
• On Friday, Ukraine and Saudi Arabia signed an agreement establishing a framework for future military contracts, primarily focused on air and drone defence.
• Goldman Sachs has found that while oil supply shocks still tend to reduce job growth and raise unemployment, the impact today is roughly one-third as large as it was in 1975-1999, likely reflecting the lower oil intensity of U.S. GDP and a surge in domestic shale production.
• Asian nations are reportedly considering Covid-style measures like remote work to manage fuel shortages.
• The U.S. Senate passed a bill early Friday funding most of the Department of Homeland Security. If passed by the House of Representatives, long security lines at the nation’s airports should be alleviated.
• European Central Bank President Christine Lagarde warned that markets are underestimating the risks from the war in the Middle East.
• According to a transcript of a sealed hearing earlier this month, a federal prosecutor conceded under questioning by a judge that the U.S. Justice Department's investigation of a US$2.5 billion renovation project at the Federal Reserve found no evidence of a crime.
• The U.S. Q4 current account deficit narrowed to US$190 billion from US$239.1 billion in Q3. The current account measures things such as trade in goods and services and net income from investments abroad.
• A survey of about 200 oil and gas producers conducted by the Dallas Fed showed that 50% of respondents see no increase in wells drilled this year, while 47% see a slight to significant increase in drilling. Respondents expect West Texas Intermediate crude to trade at US$74 per barrel by the end of 2026.
• The Federal Reserve ran an operating loss of US$18.7 billion last year, its third straight year of losses. The loss was significantly smaller than in 2023 or 2024, when the Fed had losses of US$114.3 billion and US$77.6 billion, respectively.
• The U.S. Postal Service on Wednesday said it is seeking to impose a temporary 8% fuel surcharge for package and express mail deliveries to deal with rising transportation costs, which include higher oil prices as a result of the Iran war. If approved by the Postal Regulatory Commission, the surcharge would take effect April 26 and remain in place until January 17, 2027, the Postal Service said in a notice on its website.
• Weekly U.S. jobless claims data remained low this week at 210,000, indicating little immediate stress on the country’s labour market.
• Germany’s Bundesbank said the country’s economy probably stagnated in Q1.
• The British Retail Consortium said Thursday that its measure of expectations for the economy over the next three months plunged to -53 in March from -30 previously — the worst reading since the tracker began in March 2024.
• The U.S. ​has made its offer of security guarantees for a peace deal in Ukraine conditional on Kyiv ceding the country's entire eastern region of Donbas to Russia, President Volodymyr ‌Zelensky told Reuters.
• Japan's two-year government bond yields hit the highest levels in three decades on Thursday at 1.35% as a result of the surge in energy costs.