A Reuters Open Interest newsletter

Q1 ends with a BANG!

By Jamie McGeever, Markets Columnist 

Wall Street closed a tumultuous first quarter with a bang on Tuesday as hopes of de-escalation in the Middle East powered stocks to their best day in almost a year, even as data showed a slump in U.S. job openings and hiring. 

In my column today I look at the parallels between now and 2021-22, the last time central banks faced a serious global supply shock. They acted in unison to tackle inflation then, if a little belatedly. There's unlikely to be as much cohesion this time around.

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Coiled spring or dangerously complacent?

Tuesday's surge on Wall Street was extraordinary, and not just because the big three indices had their best day since May last year. Remarkably, today's move on the S&P 500 and Dow was the biggest since the Iran war started, meaning they clocked a 2% up day before a 2% down day. 

This can be looked at in a few ways. It shows how keen investors are for the war to end so they can load up on risky assets. Or it shows they underestimate the damage already done, lingering risks even if hostilities cease tomorrow, and the potential for prolonged conflict. Or, it was just month-end and quarter-end positioning.

* A quarter for the ages

The first quarter of 2026 closed on Tuesday, and what a three months it has been. Brent crude had its biggest rise since the first Gulf War; European LNG rose 80%; the 'Mag 7' megacaps slumped 13%; March was the worst month for world stocks since September 2022, with $8 trillion market cap lost.    

The volatility sparked by the Middle East conflict is summed up perfectly by South Korea's KOSPI index. It ended the quarter up 20% but also in a bear market, as its close on Tuesday was down 20% from February 27 peak, the day before the US and Israel attacked Iran. Buckle up for Q2! 

* U.S. gasoline crosses 'psychological' $4

Traders often cite "psychological" price levels in markets as magnets for activity - round numbers, big numbers, new highs or lows. On Main Street, the break of big price levels can have political reverberations, which is happening with U.S. gas prices right now.

The average price of gasoline is now above $4 per gallon for the first time since 2022, up 35% since the Iran war started. This is potentially damaging for President Trump, whose approval rating is tanking. There's a long way until the mid-terms in November, but high and rising gas prices aren't a vote winner.

The last time the world faced a sudden surge in inflationary pressures from a severe supply shock and spiking energy prices, in 2021-22, major central banks responded in unison. That's unlikely to happen this time around.

Five years ago, pandemic-related supply disruptions kicked off a unified - if belated - interest rate-hiking cycle among the world's biggest central banks that sped up in the face of sky-rocketing energy prices triggered by Russia's invasion of Ukraine in February, 2022.

Now, policymakers are wary of being too late to respond to the inflationary threat from the supply shocks triggered by the Iran war, and rates markets are shifting accordingly. Should we expect central banks to continue moving in lockstep as they did five years ago?

Not if the supply crunch deepens.