Iran War Trade Roils Markets as Trump Narrates the Conflict

Markets hope for an end of the US-Iran war but fear it may have already set a path toward recession.
Markets have swung sharply amid a flurry of comments from President Trump
Hopes for an offramp to the US-Iran war are giving way to fears of escalation
ISM data feeds into fears that the war’s inflation shock may trigger recession

Stock markets have rebounded with Treasury bonds this week while the US dollar has fallen with crude oil prices amid hopes for an end to the US-Iran war. Such moves may not last however, for even if hostilities were to end quickly, the conflict’s negative effects on inflation and economic growth are likely to linger.

The bellwether S&P 500 stock index is on pace to add 2.1% this week. If the index manages to hold on to gains before most of the world’s top bourses shutter for the Good Friday holiday, it will break a five-week losing streak. The 10-year Treasury bond is tracking to close up 0.4%, with yields falling in parallel.

Global markets seesaw as President Trump narrates the Iran war

This follows comments from US President Donald Trump. The Wall Street Journal reported that Mr. Trump told aides he is willing to end the US military campaign even if the Strait of Hormuz – the vital waterway at the heart of Iran’s defensive efforts – remains closed. The New York Post quoted Trump seeing an end of the war in two to three weeks.

Remarks from Iran’s President Masoud Pezeshkian seemed to open the door a bit wider for a deal to end hostilities. “We’re ready to end the war,” he said, “but want guarantees”. The country’s foreign ministry pushed back after Pezeshkian’s comments stoked speculation that Tehran is seeking a ceasefire, calling such claims “false and baseless.”

Still, traders seemed ready to believe in rosy possibilities until President Trump delivered a much-anticipated speech on the state of the war. He said the conflict is “very close” to completion but threatened to escalate attacks in the coming two to three weeks, attacking “each and every one of [Iran’s power plans]” if Tehran refuses to make a deal.

Crude oil prices jumped while stocks and bonds swooned after the speech – trimming weekly gains – as the president’s combative stance poured cold water on hopes for an imminent offramp to the five-week-old war. The US dollar shot higher, adding 0.7% against an average of major currencies.

US economic data echoes fears of inflation turning into a recession

Earlier, data tracking US manufacturing from the Institute for Supply Management (ISM) foreshadowed the gathering of economic headwinds linked to the war. Headline purchasing managers index (PMI) data pointed to a third month of strong economic activity growth in the sector, but worrying trends emerged under the surface.

New orders growth slowed for a second consecutive month. Input prices surged, increasing at the fastest pace since June 2022, when the inflation shock following the COVID-19 pandemic still ravaged the economy. Employment continued to contract having last increased in January 2025 and fallen every month since then.

These numbers feed into speculation that the war has already gone on long enough to evolve from an inflationary shock – traders’ initial interpretation – to a recession risk. Tellingly, Treasury bonds and gold prices began to recover even as stocks continued to fall before President Trump’s rhetoric scrambled markets.

In another telltale sign, inflation expectations baked into bond prices – so-called “breakeven” rates – began to decline even as oil prices remained elevated. They had been moving higher in lockstep with the WTI crude benchmark since the start of the conflict. That may be a nod to emerging “demand destruction” fears.

 

 

Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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