Growth signals remain intact despite geopolitical shocks

Key takeaways

• Middle East developments continue to drive market volatility
• Global data points to modest business growth
• U.S. consumer remains resilient despite higher energy prices

The conflict in the Middle East remained a key driver of market sentiment this week, with rapidly shifting headlines contributing to heightened volatility.

Early in the week, reports of a partial ceasefire and constructive talks between the U.S. and Iran supported a rally in financial markets. However, that optimism faded as conflicting reports emerged midweek, including denials of negotiations and signs of increased military activity. By Thursday, renewed indications of progress and a potential extension of the ceasefire once again lifted sentiment.

Despite these swings, market moves were net flat; through Thursday’s close, both global equity markets and sovereign bond yields were little changed on the week. 

This pattern underscores how sensitive markets remain to geopolitical developments, particularly around the potential duration and impact of any disruption to energy supply.

Away from geopolitics, incoming economic data pointed to continued, albeit modest, growth across advanced economies. Global purchasing managers’ indices (PMIs) for March remained above 50 across both manufacturing and services sectors, indicating ongoing expansion.

In the U.S., additional detail from regional Federal Reserve manufacturing surveys suggests a potential pickup in business investment. Measures of capital expenditure intentions have shown signs of improvement, pointing not only to continued support from AI-related investment, but also a possible broadening in spending.

Policy may be playing a role. Business investment could be benefiting from expensing provisions introduced in last year’s fiscal legislation, which were designed to support capital spending.

Another key focus this week has been the U.S. consumer, particularly in light of higher gasoline prices tied to recent energy market volatility. So far, the data points to continued resilience.

High-frequency indicators, including credit card spending data and weekly retail sales measures, suggest that consumer activity remained solid through the first three weeks of March. Despite rising fuel costs and geopolitical uncertainty, spending has held up.

That resilience will be important to monitor in the weeks ahead. Sustained pressure from higher energy prices could eventually weigh on consumption, but current data suggests the consumer remains a source of support for the U.S. economy.

Looking forward, next week brings several key macroeconomic releases, including ISM business surveys and the U.S. nonfarm payrolls report, which will provide further insight into the strength of economic momentum.