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Global equity markets finished lower over the week ended March 27. Uncertainty towards the end of the conflict in the Middle East kept investors away from risk assets. Furthermore, equity markets are contending with the possibility of central banks raising interest rates this year. In Canada, the S&P/TSX Composite Index moved higher, getting a strong performance from the materials sector. U.S. equities declined over the week. Yields on 10-year government bonds in Canada and the U.S. increased. The price of gold was largely unchanged. It was a choppy week for oil prices as investors considered whether a ceasefire in the Middle East conflict would be reached. The price of oil ended slightly higher.
No deal between the U.S. and Iran
Last week, the conflict in the Middle East persisted with strikes continuing and the Strait of Hormuz remaining effectively closed.
The U.S. proposed a 15-point plan to Iran to reach an agreement on a ceasefire, but it was rejected by Iran. Iran, meanwhile, provided conditions that must be met for a ceasefire to be discussed. Those conditions included it taking authority over the Strait of Hormuz.
Financial markets were choppy as investors considered all reports, which raised uncertainty about when the conflict in the Middle East may come to an end.
Oil prices moved higher over the week. Inflationary pressures are building.
The International Energy Agency said the conflict in the Middle East could impact global economic activity long after its conclusion. Meanwhile, Bank of Canada Senior Deputy Governor Carolyn Rogers said increasing oil prices is likely to push inflation higher in the near term in Canada.
Canada’s economy could benefit from more pipelines
A report from public think tank Montreal Economic Institute (MEI) showed that Canada needs to build more pipelines going to coastal waters, which would help it export more energy products to countries outside of the U.S.
MEI says the price gap between light U.S. and heavy Alberta crude oil narrowed by almost 40% leading up to and following the completion of the Trans Mountain Corp.’s pipeline expansion, which has resulted in a US$16.7 billion ($C23.1 billion) boost to industry revenues.
The conflict in the Middle East has demonstrated that the global economy could benefit from more Canadian oil. The MEI noted that Canada has done a good job of exporting more energy products to countries other than the U.S.
Trans Mountain launched Open Season, which is the process to gauge commercial interest in potential projects to increase the company’s pipeline capacity.
The Canadian government has expressed its desire to have more pipelines built but noted that they will need regulatory and environmental approvals, along with private investment.
U.S. mortgage rates heading higher
The Mortgage Bankers Association of America (MBA) said the rate on a 30-year fixed-rate mortgage increased to 6.43% over the week ended March 20, which is the highest level since October 2025.
Mortgage rates in the U.S. increased sharply over the past couple of weeks as higher energy prices are raising concerns about inflation, which has ignited expectations the U.S. Federal Reserve Board may need to raise interest rates.
This could put even more pressure on an already soft U.S. real estate market. Mortgage applications in the U.S. declined by 10.5% over the same week, after falling by 10.9% in the previous week.
The conflict in the Middle East has raised uncertainty and inflationary pressures, which could impact households and businesses in the U.S.
That uncertainty and the potential for less discretionary dollars, along with higher mortgage rates, could weigh on demand for real estate in the near and medium term.
Japan sees slower manufacturing activity
Manufacturing activity in Japan slowed in March for the first time since October but still eked out a small expansion.
The S&P Global Japan Manufacturing Purchasing Managers Index dropped to 51.4 in March from 53.0 in the previous month, which was the highest level in almost four years.
Japan’s manufacturing sector felt the impact of the conflict in the Middle East. New order growth was down, particularly new export orders. Meanwhile, and maybe most concerning, input prices rose to their highest level since early in 2025.
Services sector activity also declined over the month. The slowdown in both manufacturing and services sector activity drove down overall private business activity in March.
At its March meeting, the Bank of Japan, similar to other central banks, expressed its uncertainty in response to the conflict in the Middle East. Higher prices in the manufacturing sector suggest inflationary pressures are building.
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