Even a "ceasefire" does not mean "normalization", and the world will be more "stagflationary" than expected in 2026

# Long Yue

Nomura warns that even if a “ceasefire” is reached between the U.S. and Iran, it will **not** equal an immediate return to normal energy trade. The time lag between ceasefire and normalization could make the 2026 global environment more “stagflationary”: inflation and interest rates pushed higher passively, with economic growth and equity valuations under pressure. During this period, the U.S. dollar and U.S. assets will maintain their relative strength, and shorting the dollar should not be rushed.

A “ceasefire deal” could come quickly, but markets may only price in a “return to pre‑war conditions” once energy trade flows smoothly again.

According to追风交易台 (Zhuifeng Trading Desk), Nomura Securities’ Japan team stated in a latest research note on March 27 that market narratives around U.S.–Iran ceasefire negotiations are taking shape, but investors should focus on another variable: whether and when energy trade will “normalize.” The “time lag” between ceasefire and normalization will make the 2026 investment environment more challenging than before the war.

“Ceasefire is not synonymous with energy trade normalization.” A ceasefire would indeed ease extreme market pessimism toward the economy and effectively prevent a credit crunch in financial markets. However, until the path to restoring energy trade becomes clear, oil prices, business confidence, and monetary policy outlooks will struggle to return to pre‑war levels.

The report draws a clear conclusion: “In 2026, investors may have to operate under more stagflationary conditions than previously expected.” This means that even as the global economy enters a recovery phase, inflation and interest rates will run slightly higher than assumed earlier, while economic growth rates and equity valuations will remain relatively suppressed.

## Market pricing for “greater stagflation”: rate‑hike expectations rise globally

Markets have already begun pricing in a more stagflationary world.

Amid sticky inflation, rate‑hike expectations across major economies are rising. Markets have now priced in three rate hikes from the Bank of England, two from the European Central Bank, and roughly half a hike from the Federal Reserve for this year.

However, the author also questions whether such aggressive tightening is truly needed to curb inflation if oil prices merely “plateau at high levels,” arguing this “remains debatable.” In this mildly stagflationary environment, major central banks run a high risk of policy errors. Tightening too aggressively could stifle the recovery; tightening too little would leave inflation more persistent and term premiums higher.

## Before normalization, shorting the dollar is not wise

In discussions with numerous overseas investors, the bank found that markets have formed two core consensus trades around a “ceasefire deal”: steepening of U.S. Treasury curves and shorting the U.S. dollar.

The first consensus is a steeper yield curve in the U.S. bond market. The logic is straightforward: once a ceasefire is reached, markets will reignite expectations of near‑term Fed rate cuts, pushing down front‑end rates. Meanwhile, lingering effects of high crude prices, plus increased fiscal spending to respond to the conflict and stimulate the economy, will significantly lift market inflation expectations and term premiums, pushing up long‑end rates. With front‑end yields falling and long‑end rising, the curve naturally steepens.

The second consensus is a weaker U.S. dollar. The dollar was strongly favored as a safe haven during the conflict. Once a ceasefire takes hold and oil prices stabilize, the safe‑haven premium for U.S. markets will fade sharply, and capital flows will reverse their earlier flight to safety. Additionally, the upcoming leadership transition at the Federal Reserve adds uncertainty to U.S. policy, further accelerating capital outflows from the dollar.

In the bank’s view, the first‑order effect of a ceasefire is to reduce the probability of “worst‑case scenarios” — for instance, lower risks of a sudden tightening in credit conditions and a recovery in risk appetite. But what truly determines the neutral level of interest rates and inflation is whether the energy trade chain can shift from “restricted, rerouted, and price‑distorted” to “predictable, deliverable, and financeable.”

This underpins a key judgment in the report: **until energy trade normalizes, U.S. assets and the U.S. dollar are likely to retain their relative strength.**

The reasoning is simple: higher uncertainty pushes capital toward markets with stronger liquidity and depth; and any disruption in the energy chain makes it harder for global inflation and term premiums to decline.

## Major sector rotation in U.S. stocks: capital returns to banks, consumer and capital goods

A shift in the macro environment will inevitably trigger sharp rotations at the sector level. Industries abandoned during the conflict will lead the post‑ceasefire recovery.

Since the conflict began, tech and energy stocks have outperformed, while consumer discretionary, capital goods, real estate, and non‑U.S. bank stocks have lagged the broader market significantly. The core divergence lies in the varying degrees of negative pressure from elevated energy costs, financing constraints, and high policy rates across industries.

But market leadership is set to change. “Assuming a credit contraction is avoided, bank stocks will outperform the broader market in the post‑ceasefire phase,” the author Naka Matsuzawa emphasizes.

As energy trade normalizes, expectations for a global economic recovery will heat up rapidly. At that point, capital goods and consumer‑related stocks — highly sensitive to the economic cycle — will regain strong upward momentum. The scale of the rebound in real estate, meanwhile, will depend on whether bond yields stabilize.

## Japan’s dilemma: BOJ trapped on the sidelines, equity and currency forecasts cut

For Japan, a ceasefire alone is insufficient; the normalization of energy trade will be the decisive factor.

Japan relies heavily on energy imports. Until energy trade resumes, imported inflation from high oil prices will clash sharply with weak domestic demand, leaving the Bank of Japan (BOJ) stuck in a policy dilemma.

Matsuzawa notes: “The BOJ will struggle to bring its policy rate to a neutral level, and market concerns about it ‘falling behind the yield curve’ will persist.”

With the central bank forced to remain relatively cautious, inflation expectations will push up long‑term yields. As a result, Japan’s bond yield curve is expected to steepen (at least at the 10‑year tenor) for some time after the ceasefire, while the yen remains weak — especially in cross rates.

Amid pessimism over this extended stagflationary tail, Matsuzawa has **cut Japan’s core equity and currency forecasts across the board**: lowering 2026–2027 quarterly targets for both the Nikkei 225 and TOPIX, and simultaneously downgrading USD/JPY forecasts, arguing the yen will remain under heavy pressure in the near term.

The above content is from 追风交易台 (Zhuifeng Trading Desk).

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