Oil shock lifts the dollar and inflation concerns, pressuring global risk assets and emerging markets

Overview

This Global Macro Commentary focuses on global market performance on April 2, 2026. The main shock came from rhetoric around U.S.-Iran tensions driving oil prices sharply higher, which in turn reinforced the dollar, inflation expectations, and a more hawkish central bank pricing bias; however, intraday news suggesting that traffic in the Strait of Hormuz might be supervised eased some of the risk-off tone, pulling core U.S. Treasury yields back from earlier highs. Overall, the market showed a mix of higher oil and dollar, weaker risk appetite, and pressure on assets sensitive to energy imports.

Core views

The report's central view is that the rise in oil prices changed the market's trade-off between growth and inflation: on one hand, the energy price shock lifted inflation concerns, supported the dollar, and weighed on cyclical G10 currencies and EM assets; on the other hand, growth concerns later in the session brought duration back into favor in U.S. Treasuries. Among developed markets, Japan lagged notably because of a weak 10-year JGB auction and global rate selling; European and U.K. rates were also weaker under energy-inflation pressure. In emerging markets, Asia was broadly under pressure except India, with Korea weak across both stocks and bonds, CEEMEA and Africa dragged by oil and dollar channels, and LatAm showing a more mixed picture.

Analysis framework

The report uses a daily cross-asset market recap framework, linking geopolitical news, oil, the dollar, the rates curve, inflation breakevens, EM FX, and equity performance, while also incorporating central bank commentary and macro releases from the day to identify the main drivers of pricing.

Methodology notes

• Cross-asset macroGrowth-inflation mix analysis

  An oil shock affects both inflation expectations and growth expectations

  The report uses the post-oil-shock divergence in Treasuries, the dollar, equities, and EM assets to show that the market was pricing both higher inflation and the drag from higher energy costs on growth.

• Rates strategyYield curve and breakeven inflation analysis

  The interaction of nominal yields, real yields, and inflation breakevens

  The report tracks yields across maturities in the U.S., Germany, the U.K., and Japan, as well as changes in TIPS and breakevens, to assess the relative strength of inflation shock pricing versus duration hedging demand.

• FX strategyDollar and energy-import sensitivity framework

  Higher oil prices and a stronger dollar put more pressure on externally vulnerable economies

  The report notes that high oil prices and a strong dollar hurt currencies with higher risk beta or stronger dependence on energy imports, while policy intervention or commodity linkage only provided limited cushioning.

• Emerging markets strategyRegional risk-reduction observation

  EM assets diverge under an oil shock based on external buffers and policy responses

  The report compares Asia, LatAm, CEEMEA, and Africa, emphasizing that India outperformed thanks to policy measures, while Korea and other oil-sensitive economies came under more visible pressure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• USD / DXY

  Supported by higher oil prices, geopolitical risk, and relative yield advantage

  Strengths

  Safe-haven status, relative carry support, and dollar liquidity preference during energy shocks

  Weaknesses

  If growth concerns materially push U.S. yields lower or geopolitical risk eases, upside momentum could fade

  Comparison

  Stronger than most G10 cyclical currencies and most EM currencies

  Risks

  Easing Hormuz risk, lower oil prices, softer U.S. data, or markets repricing cuts again

• Oil / WTI / Brent

  Geopolitical conflict was the most direct driver on the day

  Strengths

  Conflict rhetoric and supply-route concerns lifted the risk premium sharply

  Weaknesses

  Highly sensitive to easing headlines around Hormuz traffic, with gains potentially retracing quickly

  Comparison

  The strongest-performing commodity on the day relative to gold and equities

  Risks

  A reversal in geopolitical headlines, open supply routes, or weaker demand from growth concerns

• US Treasuries

  Swung between inflation shock and growth concerns, ending with a bull flattening bias

  Strengths

  Growth concerns and safe-haven demand supported a pullback in long-end yields

  Weaknesses

  The oil shock pushed breakeven inflation higher, limiting room for cut trades

  Comparison

  More resilient in the long end than Japanese and European rates

  Risks

  Further oil gains, runaway inflation expectations, or more hawkish central bank messaging

• Japan rates and equities

  Weak JGB demand combined with global rate pressure to hit Japanese assets

  Strengths

  The ultra-long end saw some dip buying into the close

  Weaknesses

  A wider 10-year auction tail, rising yields across the curve, and a sharp Nikkei selloff

  Comparison

  Japan was weak relative to developed-market rates and equities

  Risks

  Continued weak auction demand, further global yield increases, and more volatile USD/JPY moves

• Emerging Markets Asia

  Hit by a stronger dollar, higher oil prices, and weaker risk appetite

  Strengths

  India was a notable exception thanks to policy support for the currency

  Weaknesses

  Korea, Thailand, the Philippines, and others were dragged down by risk reduction or energy-import channels

  Comparison

  Overall weaker than some commodity-linked LatAm markets

  Risks

  Persistently high oil prices, further dollar strength, capital outflows, and higher local yields

• Gold

  Fell on the day and did not show its usual leadership as a safe haven

  Strengths

  Longer term, it may still be supported by geopolitical risk and inflation concerns

  Weaknesses

  Spot gold fell 1.8% on the day, creating additional pressure on related assets such as THB

  Comparison

  Clearly weaker than oil

  Risks

  Higher real rates, a stronger dollar, and safe-haven flows shifting toward the dollar or Treasuries

Key data

• DXY100.01, +0.4%The dollar strengthened on oil, geopolitical risk, and relative yield support.
• WTI111.62, +11.5%Conflict rhetoric drove the oil surge, which was the main macro trade theme of the day.
• Brent108.79, +7.5%Higher oil prices increased inflation concerns and pressured energy-import-sensitive assets.
• U.S. 10-year Treasury yieldaround 4.30%, -1.4 bpIt rose early on oil concerns and then fell back on growth worries and the Hormuz easing headlines.
• U.S. 2-year and 30-year yields2y -0.1 bp; 30y -2.0 bpU.S. rates ended with a bull flattening move.
• Initial U.S. jobless claims202kBelow Morgan Stanley's estimate of 205k and the market consensus of 212k, showing no sign yet of labor market stress.
• U.S. February trade balance-$57.3bnSlightly better than the -$60.6bn consensus; the report said broad goods import and export strength was a positive signal for pre-conflict activity.
• U.S. 1Q26 real GDP tracker2.0% q/q saarSlightly above Morgan Stanley's baseline forecast of 1.9%.
• Nikkei-2.4%Japan was hit hard by the weak JGB auction and weaker global risk appetite.
• 10-year JGB yield+7.7 bpThe 10-year auction tail was the largest since August 2024, amplifying the yield rise.
• INRup 1.8% to 93.11 versus the dollarIndia outperformed after RBI tightened offshore derivatives rules and CCIL raised margin-use requirements.
• KOSPI-4.5%Korea was one of the clearest examples of risk reduction in Asia.
• Gold spot4671.62, -1.8%The decline in gold also weighed on some related currencies, such as THB.
• S&P 500+0.1%U.S. equities only partially reflected the inflation shock, with energy and defensive sectors leading relatively.

Impact & implications

For investors, the report suggests that short-term macro trading still depends heavily on the geopolitical and oil path. If oil stays elevated, the dollar and inflation risk premia may continue to be supported, while energy-importing economies, high-beta EM assets, and growth-sensitive stocks could remain under pressure; if Hormuz-related risks keep easing, U.S. duration and risk assets may stage a tactical rebound, but central banks are still unlikely to pivot quickly toward easing.

Risks

• News related to the Iran conflict and the Strait of Hormuz could trigger a sharp reversal in oil and risk assets.
• Persistently high oil prices could lift inflation expectations and make it harder for the Fed, ECB, and BoE to move toward easing.
• Emerging markets with high energy import dependence and weaker external buffers could continue to face triple pressure on FX, rates, and equities.
• If growth concerns deepen, the market's current relatively muted equity reaction may be underpricing the macro shock.
• Weak demand at Japanese government bond auctions could amplify JGB yield volatility and affect Japanese equities and USD/JPY.
• The report includes disclosures of Morgan Stanley's relationships with certain sovereign or securities-related businesses, so investors should note potential conflicts of interest.

What to watch

• Whether traffic arrangements in the Strait of Hormuz and follow-up Iran headlines continue to ease the oil risk premium.
• Whether WTI and Brent can hold elevated levels, and the second-round impact of energy prices on inflation expectations and central bank pricing.
• U.S. nonfarm payrolls, unemployment, and average hourly earnings, especially whether higher oil prices begin to affect 2Q wage and employment growth.
• Whether U.S. initial jobless claims and trade data continue to support the view of economic resilience.
• Policy responses from the Fed, ECB, BoE, BoJ, and central banks in Korea and India to oil and inflation risks.
• Demand at Japan's next JGB auctions, the path of the 10-year yield, and Nikkei performance.
• Whether policy support for INR is sustainable among Asian EM currencies, and how KRW, THB, and PHP perform.
• The impact of China's March RatingDog services PMI and composite PMI on Asia growth expectations.