First Light New: Week ahead: Geopolitical developments & inflation drive market focus

The week that was
Another week has run its course, and it did not do so quietly.

Soon after Iran announced the Strait of Hormuz was open on Friday, Iran’s Parliament Speaker Mohammad Bagher Ghalibaf stated that, until the US lifts the blockade on Iranian ships, the waterway would be closed again from Saturday afternoon.

While the situation remains fluid and fragile, I think that as long as we are moving towards a resolution and the ceasefire holds without renewed conflict, markets are likely to continue to look through the ‘noise’.

Last week saw a huge upside move in risk sentiment: global equities caught a meaningful bid, the continued unwind of USD-haven demand, and oil prices were heavily weighed into the close – a different picture this morning, of course.

Meanwhile, spot gold has maintained a gradual bullish tone since pencilling in a low of US$4,098 on 23 March. As I have noted several times, the yellow metal has been largely driven by moves in real US yields and central bank expectations. When yields fall, the opportunity cost of holding gold decreases, and, to some extent, the fact that Fed rate hikes have been priced out has helped.

Review of last week’s data
The US March PPI inflation was a talking point last week and came in better than feared, with YY at 4.0% and MM at 0.5%. This follows US February PCE inflation remaining around the 3.0% level, and a jump higher in headline US YY CPI data to 3.3%. However, it is worth noting that YY core CPI numbers were relatively contained; therefore, second-round effects are not yet growing.

ECB minutes reaffirmed pretty much what we already know: despite money markets discounting at least two rate hikes this year, Lagarde and Co are not in any rush to move just yet. The minutes, however, did show that the central bank is focussed on upside inflation risks, while also closely watching downside risks to growth. April’s policy meeting is expected to keep rates on hold, while June could very well be in play for a 25-bp increase. But this would be conditional on inflation increasing, particularly on the core front.

Down under, the March Australian jobs report showed unemployment remained at 4.3%, in line with market consensus, as well as matching the RBA’s forecast for this year. Employment increased by 18,000, just shy of the 20,000 median value, while the participation rate dipped 0.1% to 66.8%. Looking at the details, full-time positions came in above 50,000 and offset the 35,000 decline in part-time roles, suggesting a tight labour market. This, coupled with increased inflation expectations, has led markets to price in a rate hike at the next meeting in May, which should technically keep the AUD underpinned.

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Publication date:

20 April 2026 - 11:19 (GMT)

The February UK GDP figures were also reported last week, showing robust growth across the board, with MM seeing a bumper 0.5% gain from 0.1% in January. While impressive, I feel that much of this upside will be wiped off the board in the coming months due to the ongoing Middle East conflict, hence the tentative rally in GBP following the announcement. It is also worth noting that the International Monetary Fund downgraded UK GDP growth to 0.8% from 1.3% this year – the largest revision among the G7.

The week that is
While attention will remain squarely on developments in the Middle East this week, we do have a relatively busy data docket.

US data:
Aside from Fed Chair designate Kevin Warsh’s Senate hearing on Tuesday and the April S&P Global manufacturing and services PMIs on Thursday, US data is relatively thin. While the PMIs offer another read on the impact of the Middle East conflict, I feel that Warsh’s hearing will take centre stage ahead of the expiry of Fed Chair Jerome Powell’s term on 15 May.

The hearing is likely to include a handful of core aspects, with the Fed’s independence to be a top focus, as well as Warsh’s political pressure to ease policy. Another key point will be his approach to inflation, which counters the Fed’s current thinking: inflation is high, so rates must remain high to slow spending and force prices lower. Warsh’s view is that inflation has been more fiscally driven – the government printing too much money and running a large deficit. Therefore, the fix is not just higher rates; it is shrinking the Fed’s balance sheet – basically unwinding all of that government money printing. Warsh also believes that AI productivity will eventually make businesses more productive/efficient, which will naturally push prices down over time through lower labour costs and faster production. However, this is still largely theoretical regarding AI’s deflationary shocks, and elevated energy prices could throw a spanner in the works.

UK data:
In the UK, we have a reasonably busy data slate to work with. This includes the February jobs report on Tuesday, the March CPI inflation report on Wednesday, the April PMIs on Thursday, and the March retail sales figures on Friday.

CPI inflation numbers will be a primary release to watch. Economists expect the headline YY number to increase by 3.3% from 3.0% in February (estimate range between 3.5% and 3.1%), with the headline MM figure anticipated to increase by 0.6% from 0.4%. YY Core CPI is forecast to remain unchanged at 3.2% (estimate range between 3.3% and 2.9%), while the MM measure is expected to ease to 0.5% from 0.6%. On the services front, YY is anticipated to increase by 4.4% from 4.3% (estimate range between 4.5% and 4.3%), and MM is forecast to ease to 0.4% from 0.5%.

Not only will this be one of the first clean readings to show the impact of rising energy prices, but it is also the last inflation report before the BoE meets at the end of this month. Markets are pretty much fully discounting a no-change decision (1.3 bps of tightening implied) for the upcoming meeting, with the possibility of increasing the bank rate by either July (15 bps) or September (24 bps).

Ultimately, with headline data expected to jump on the back of rising energy costs, it will be services and core numbers that traders watch closely. As shown in the above expectations, second-round effects are not expected to have fed through to the end consumer at this point, which, of course, will be welcome news at the BoE.

If YY core surpasses 3.3%, this would likely prompt a rise in GILT yields and underpin the GBP as traders add to rate-hike bets. However, an inline print for both the core and services may prompt the BoE to adopt a stance similar to the ECB: a data-dependent wait-and-see approach. Alternatively, a miss across the board in this week’s CPI numbers (including the headline) could see investors price out some of the tightening, subsequently weighing on the GBP.

Canadian data:
I will also be watching the March Canadian CPI inflation report today at 12:30 pm GMT.

The March Canadian numbers will provide the first snapshot of inflation since the onset of the war in the Middle East. Given the spike in energy prices, the YY headline inflation is expected to jump to 2.5% from 1.8% in February, with the estimate high at 2.8% and a minimum of 2.4%. According to the distribution, economists are heavily centred around either 2.5% or 2.6%, with only 1 desk expecting 2.8% and 1 calling for 2.4%. Therefore, anything above or below these values would catch markets off guard.

On the core front, both CPI trim and median measures – which are the BoC’s preferred indicators of inflation – are expected to remain unchanged at 2.3%, as the spillover from elevated energy prices is not expected to hit in this report. Consequently, I do not see much change in BoC messaging on the back of this release, assuming the data aligns with consensus. Investors are assigning a 95% chance that the central bank remains on hold at 2.25% on 29 April – a forecast that has not really changed over the month – though markets are still fully discounting a 25-bp hike by year-end.

Although we have seen a pullback in rate-hike bets for the BoC of late, I do wonder whether an increase in the overnight rate is justified at this point. Growth is not in great shape – in two of the previous three quarters, we have seen negative GDP prints – inflation has been steady, and unemployment remains elevated. Additionally, the Citi Economic Surprise Index for Canada has been broadly lower for the best part of this year.

Inflation would need to surprise to the upside, not just at the headline level – which is pretty much expected and is a theme across most DM inflation metrics right now due to the increase in energy cost – but also for the core metrics, which, as I noted above, are expected to remain at 2.3%. If inflation does indeed come in lower, it could prompt investors to price out some of the tightening and could add a floor for USD/CAD longs. However, if the Q1 26 New Zealand CPI data come in strong (released later this evening at 10:45 pm GMT), this could also open the door to a long NZD/CAD opportunity, assuming Canadian CPI disappoints.

Written by FP Markets Chief Market Analyst Aaron Hill