US March producer price inflation rose 0.5% month on month on a seasonally adjusted basis, unchanged from February and below the 1.1% consensus. Goods prices rose 1.6%, with energy up 8.5%, while food fell 0.3%.
Market pricing for Federal Reserve easing changed little after the data, with roughly a one-in-three chance of a rate cut this year. The report covered the first full month during the period referenced as war in Iran.
The NFIB small business optimism index fell to 95.8 in March from 98.8 in February, moving below its historical average of 98.0. Oil-price concerns were cited as a factor behind weaker sentiment.
Hiring plans and the share of firms reporting unfilled job openings continued to trend down from February, pointing to a cooler labour market. Risk sentiment was also linked to hopes of new US–Iran peace talks.
Oil prices fell a further 3–4%, and global yields eased by a couple of basis points, with the US 10-year Treasury at 4.25% and the Bund at 3.02%. Treasuries were also supported by the softer PPI reading.
We are seeing persistent inflation again, with the latest March CPI print showing a 3.5% annual increase. This has forced markets to drastically reduce expectations for Federal Reserve rate cuts this year, now pricing in only one or two moves at most. This situation feels very similar to what we experienced around this time last year.
Looking back to March of 2025, we saw a similar mix of data with a surprisingly soft PPI report. At the same time, the NFIB small business optimism index dropped, signaling concerns about the economy and a cooling labor market. Despite those softer signals, the Fed did not become more eager to cut rates.
This environment of conflicting data suggests that market volatility is likely to stay elevated, as we’ve seen with the VIX index recently climbing from its lows below 14 to over 17. For traders, this points towards strategies that benefit from price swings, such as buying straddles or strangles on major indices. These positions can profit regardless of whether the market breaks higher or lower in the coming weeks.
We should pay close attention to oil prices, which are currently high around $85 per barrel due to renewed geopolitical tensions in the Middle East. We remember how hopes of peace talks between the US and Iran in 2025 caused a sharp drop in oil, so any news on this front could cause rapid price moves. Hedging portfolios with options on oil ETFs or futures could be a prudent move against sudden spikes or drops.
Given the uncertainty around the Fed’s next move, derivatives tied to interest rates are critical. The 10-year Treasury yield is hovering near 4.6%, a key level reflecting the market’s struggle to price in the Fed’s path. Traders could look at options on Treasury futures to bet on increased volatility in yields as new inflation and jobs data comes out.
