[CMB Research] Overseas conflicts may escalate, domestic stock markets stabilize with fluctuations — Macro and strategy weekly outlook (April 7-10, 2026)

Overseas Macro Strategy: Iran War Escalation Again, Stagflation Concerns Still in Progress

The US-Israel-Iran conflict may escalate again this week. Trump has set a “final deadline” at 8:00 PM Eastern Time on April 7. Middle countries centered around Pakistan are making final efforts to mediate, but with little success; both Iran and the US still have no room for potential agreements on the Strait of Hormuz and uranium enrichment issues. Looking ahead, if Trump launches strikes on time, Iran will attack Gulf energy facilities and even water desalination plants, fully block the strait; if Trump delays again, ground operations are likely to occur in mid-April, and escalation remains highly probable.

In March, US non-farm employment data exceeded market expectations. New jobs increased by 178k (market expectation: 65k), and the unemployment rate fell to 4.3% (market expectation: 4.4%). On the surface, the US labor market appears significantly stronger, with declining unemployment and a sharp rebound in new jobs, but there are three hidden concerns: first, the tightening effects of rising oil prices and interest rates have not been fully reflected; second, the decline in unemployment is partly due to discouraged job seekers dropping out; third, the increase in new employment is mainly supported by immigration, which could exert supply-side pressure on the labor market. Notably, if the US-Iran conflict becomes prolonged, fiscal expansion and military-industrial and manufacturing recovery could also support the economy and employment.

Last week, markets continued to oscillate between escalation and de-escalation of the US-Iran war, with risk aversion easing slightly. US Treasury yields fell, the dollar fluctuated, and gold and the yuan rebounded.

Regarding US Treasuries, as Iran rejected a temporary ceasefire agreement, the likelihood of US strikes on power plants increased, and market volatility is expected to remain high. In the medium term, the market is expected to evolve into a paradigm of “high interest rates, high deficits, high inflation.” We have raised the 2026 US Treasury yield central level from 4.2% to 4.3%, with a fluctuation range of 4.0%-5.0%. The strategy mainly favors coupon strategies, avoiding long-term bonds.

On US stocks, last week, the market rose, with the S&P 500 up 3.4%, mainly due to a short-term oversold rebound. US stock valuations do not reflect “stagflation” and face downside risks. The current allocation strategy is to moderately reduce holdings, prioritize defense, and patiently wait for long-term opportunities after clearing positions. Key signals to watch are: first, a decline in oil prices and easing inflation pressures, prompting the Fed to shift back to easing, which will drive valuation recovery; second, valuation falling to reasonable lows, fully digesting stagflation expectations.

As for the dollar, short-term risk aversion is expected to continue supporting dollar strength. In the medium term, if the conflict persists and evolves into stagflation at the macro level, the dollar’s movement will be dominated by monetary policy. Reviewing the two oil crises of the 1970s, the Fed’s policy swings caused the dollar to fluctuate widely. Despite many constraints faced by Wosh, considering his hawkish stance, the policy tilt is likely to favor tightening, implying potential for dollar rallies. Of course, if subsequent monetary policy shifts due to economic stagnation or political factors, the dollar could retreat from high levels.

The renminbi faces slight short-term pressure but is expected to remain resilient in the medium to long term. Strong export performance and the return of foreign exchange demand are core drivers supporting the renminbi’s strength. Although high oil prices and rising US rate hike expectations may trigger a dollar rebound, the robust foreign exchange inflow has shown some desensitization, and the 2021 pattern of “dollar rebound, renminbi resilience” may repeat.

Gold markets will remain under inflation trading pressure in the short term. In the medium term, high oil prices will likely impact the economy, shifting market focus from pure inflation trades to concerns about “stagnation.” Moderate bets on gold rebounds are possible, but the upward momentum is constrained, especially under extreme scenarios where central banks sell off due to liquidity shortages. Therefore, while gold offers some long opportunities, caution is advised before challenging previous highs, and long positions should be held prudently.

China Macro Strategy: Domestic Demand Recovery Stabilizing, Market Turning Point Still to Watch

In March, manufacturing PMI was 50.4%, up 1.4 percentage points from the previous month, returning above the expansion/contraction line. Three notable features: first, the price index rose sharply, with purchase prices up 9.1 points to 63.9%, reaching a 46-month high, mainly driven by geopolitical factors; PPI inflation may turn positive in March. Second, production and demand indices