Risk sentiment stayed fragile, with equities under pressure alongside geopolitical and energy uncertainty. Markets pare Fed hike expectations, shifting the focus from inflation risk to growth downside. Material steepening for the treasury curve

Global equities extended their selloff, putting the S&P 500 on track for its worst month since 2022 and a fifth straight weekly decline, as Middle East tensions kept risk appetite fragile. The Nasdaq slipped into correction territory, despite President Trump pausing strikes on Iran’s energy sector to allow talks. Brent crude prices surpassed US$110 per barrel, treasuries were mixed and the dollar edged higher. Reports the Pentagon is considering sending up to 10,000 additional troops to the region reinforced fears of escalation, sustaining pressure on global risk assets.

Oil prices moved steadily higher, reflecting expectations of a prolonged disruption to Middle East supply routes and limited progress on the path to de-escalation. The Strait of Hormuz remains largely shut, keeping physical flows tight, while the White House’s decision to push back a deadline for potential strikes on Iranian energy infrastructure has extended the window of uncertainty. The increased risk of disruption for Red Sea shipping after the Houthi attacks over the weekend could add a further geopolitical risk premium to oil.

US consumer sentiment fell to a three-month low in March, while one-year inflation expectations rose as Middle East conflict-related pressures pushed gasoline prices higher. Consumers now see prices rising 3.8% over the next year, up from 3.4% a month earlier — the largest increase since April 2025 — and they expect gasoline prices to be the highest since June 2022. High prices remain the main drag on household confidence, with 47% of consumers saying current price levels are eroding their personal finances.

Fed officials expressed growing anxiety over the US economic outlook due to the war in the Middle East. Governor Lisa Cook said the balance of risks has shifted toward higher prices even as the labour market looks “in balance, but precariously so.” Governors Michael Barr and Vice Chair Philip Jefferson both leaned toward holding rates steady to gauge the hit to growth and inflation, with Barr also warning tariff-driven price pressures could linger beyond this year.

The US treasury curve steepened as the market pared back expectations for Fed tightening this year. Pricing for 2026 moved from around 20bp of hikes earlier in the session to about 6bp by the close, underpinning the front end as risk assets stayed under pressure. The front end of the curve shifted from focussing on energy and inflation towards the downside for growth and risk assets. 10-year yields traded up to 4.48%, a conflict high, before closing up 2bp at 4.44%, with the 2s10s curve steepening 9bp to +52bp.

The US dollar was broadly stronger against G10 currencies in offshore trade Friday. USD/JPY traded above 160 — a level that has previously drawn official intervention. Finance Minister Katayama had earlier said that authorities are prepared to take “bold” action to counter disorderly moves. The warning comes as Middle East tensions keep haven demand elevated and energy volatility in focus, with Katayama pointing to oil-linked speculative flows. Japan will allow more use of coal-fired plants which can offset around 40% of the LNG imports normally routed though the gulf.

NZD/USD extended its decline slipping below 0.5740 which is the lowest level since the war began. The NZD was stable on most of the key crosses relative to the local close though NZD/EUR ended marginally lower.

NZ fixed income sold off on Friday largely reflecting the moves in offshore markets. The market looked past a material drop in consumer confidence likely reflecting the sharp spike in fuel costs and lift in mortgage rates. Swap rates closed 4-7bp higher across the curve. The 2-year swap rose to 3.54% and the 10-year to 4.40%, leaving the 2s10s curve slightly flatter at +86bp. Government bond yields also pushed higher across the curve matching the move in swaps.

Monthly filled jobs for February is the only notable domestic release today, while the international calendar is limited to second-tier data. German CPI will provide some guidance ahead of the euro-area release later in the week.

Stuart Ritson is a Markets Strategist at BNZ Markets.