By Douglas Porter

March 27, 2026

In a pattern that is becoming all-too-familiar in the four-week Iran conflict, markets rallied on Monday only to eventually grind weaker again as the reality dawned: hostilities will continue for some time yet. At time of writing, oil prices are nearly back to where they finished last Friday, but bond yields are higher yet, the U.S. dollar is firmer, gold is lower, and stocks gave back their early-week gains.

In fact, the Nasdaq is now in full correction terrain, dropping just over 11% from its nearby high, set in late January. Markets took zero solace from the President’s deadline extension to April 6 for Iran to basically surrender and fully open the Strait of Hormuz. By almost all accounts, Iran seems to have no interest in backing down. Increasingly, it looks like the near-term off-ramps are closed for construction.

Of course, the longer the conflict goes, the greater the economic damage. We have been attempting to gauge the impact on inflation and growth since the beginning of the conflict, struggling to not get whipsawed by the relentless swings in oil prices and broader market sentiment.

Early on, our weighted scenarios pointed to an average WTI price of around $95 in March and April, then working its way down reasonably quickly back to almost pre-war levels by the end of the year (resulting in an average price of about $75 for all of 2026).

While the near-term call looks sound, it’s quite clear that the biggest risks to those assumptions are that oil will stay higher for longer and could spike much higher in coming days. While our forecasts are not being adjusted this week, the risks seem skewed to the high side for inflation, and to the low side for growth.

As the calendar turns to April next week, the initial data flow for March will begin in earnest, highlighted by the U.S. factory ISM, auto sales, and the employment report (on Good Friday). These will be eagerly anticipated, providing the first broad readings of how the economy is faring in the face of the flareup in energy prices and the latest sag in sentiment.

The University of Michigan found that consumer confidence fell more than initially expected in March, to 53.3 from 56.6 in February, as the one-year inflation expectation lurched up to 3.8% from 3.4% last month.

We suspect that the initial impact will land much more heavily on inflation than growth—for example, employment is expected to see a small rebound from the surprising 92,000 setback in February (we’re at +37,000). And auto sales and the factory ISM are expected to hang tough near the prior month’s levels.

The global economic calendar already offered some morsels of data from March earlier this week. On the growth front, S&P’s PMIs revealed a consistent theme around the developed world: services activity cooled, while manufacturing generally improved.

A more cautious consumer in the face of spiking energy costs is likely weighing on the services sector. That’s no surprise, and the dips were not overly concerning—the U.S. index slipped 0.6 points to 51.1, while Japan fell 1 pt to 52.8, and the Euro Area 1.8 pts to 50.1, all just staying in expansion territory. Meantime, the factory measures either beat expectations and/or nudged stronger.

That split decision for the major economies can be explained by manufacturers meeting prior orders, and also by the ongoing boom in tech. Note that South Korea reported that its exports surged 40% y/y in the first 20 days of the month, led by tech gear. (Aside: we can only dream of that kind of data timeliness here, and it shows how Korea prioritizes trade.)

Canada’s economic calendar is considerably lighter on March data next week, with only auto sales and some scattered home sales results from a few large cities on offer. While we will get the monthly GDP for January (and a February flash) and merchandise trade for February, they will have less weight than normal since they are PW (pre-war). We suspect the economy stumbled at the start of the year, partly due to unusually harsh weather, but the February flash on GDP could be interesting—there has been a wide gulf between extreme weakness in jobs but a rebound in manufacturing and wholesale trade reported thus far for the month. Call it a draw.

Overall, the very early reads suggest that growth across most major economies is holding up reasonably well. In fact, the OECD’s latest projections did not budge on global growth at 2.9% for this year, albeit they were a bit more cautious than others in their earlier December forecast (we are now at 3.0% for this year).

The much bigger near-term concern is for inflation. And we did get one preliminary reading on March CPI this week from Spain, where headline inflation stepped up a full percentage point to 3.3%. However, that was somewhat below expectations, and the better news was that core held steady at 2.7%, at least for this month.

That’s likely a pretty good taste of what we are going to see in the rest of the industrialized world in the weeks ahead. And while the OECD may not have done much with their growth outlook, they ratcheted up their call on CPI inflation, lifting the U.S. call by a whopping 1.2 ppts this year to 4.2% (much bigger than our 0.5 ppt lift).

It’s that shifting landscape on the inflation outlook, and the uncertainty whether it could a) go even higher, and b) spill into core inflation, that has bond markets running scared. Yields marched higher yet again this week, with the benchmark 10-year Treasury punching above 4.4%, and now up a towering 50 bps since the conflict began. The yield back-up has been even more intense at the short end, with two-years now up almost 60 bps in both the U.S. and Canada in the past month.

It has been well documented that markets are now priced for multiple rate hikes by the Bank of Canada, but they are back to also pricing in solid odds of a rate hike this year by the Fed. We would just point out again that at last week’s FOMC, not a single member had a rate hike pencilled in for this year in the dot plot, and only one had a hike in 2027.

But as the philosopher king Yogi Berra would say, “the future ain’t what it used to be”, and for central banks, “if you don’t know where you’re going, you may wind up someplace else.”

We noted earlier that the Nasdaq is now in an official correction. That index is actually down roughly 12% from its record high, which was reached way back in late October. To put that in perspective, that’s the time that last year’s baseball season was just about wrapping up.

Well, here we are five months later, just as opening day is upon us in many cities, which naturally drives the shout out to Yogi today. And, yes kids, Yogi delivered the title’s quote way back in 1973, almost two decades before Lenny Kravitz cribbed it. And speaking of baseball, who’s up for a Jays/Dodgers rematch?

Policy Contributing Writer Douglas Porter is Chief Economist for BMO.