Even a ceasefire does not mean normalization. The world in 2026 will experience more stagflation than expected.

“Ceasefire trades” can move quickly, but the market may have to wait until energy commerce resumes smoothly before it truly builds “back to prewar” into pricing.

According to reports from the Chasewind Trading Desk, on March 27, the Japan team at Nomura Securities said in its latest research note that the market narrative around “ceasefire negotiations” between the United States and Iran is starting to take shape. However, investors should focus on another variable instead: whether—and when—energy trading will be “normalized.” The “time lag” between ceasefire and normalization will make the 2026 investment environment even harder to navigate than in the prewar period.

“‘Ceasefire’ and ‘energy trading normalization’ are not synonymous.” Ceasefire can indeed ease the market’s extreme pessimism about the economy and effectively prevent a credit crunch from emerging in financial markets. But before the path for energy trade recovery is clear, oil prices, business confidence, and the outlook for monetary policy are all unlikely to return to prewar conditions.

The report’s conclusion is very clear: “Investors in 2026 may have to operate under more ‘stagflation-like’ conditions than previously expected.” This means that even if the global economy is in a recovery phase, the level of inflation and interest rates will be slightly higher than earlier assumptions, while the economic growth rate and stock valuations will be relatively held back.

Market pricing for “more stagflation”: rate-hike expectations heat up across central banks

The market has started to bake a “more stagflation” world into its pricing.

Because inflation is sticky, rate-hike expectations are rising for major global economies. At present, the market has already priced in expectations of three rate hikes in the UK this year, two in Europe, and 0.5 in the United States.

But the author also raises a question: if oil prices are merely “flat at high levels,” is it truly necessary to deliver such aggressive rate hikes to rein in inflation—still “open to debate.” In such a “somewhat stagflationary” environment, major central banks are highly likely to make policy mistakes. If central banks hike too hard, the recovery gets suppressed; if they hike too little, inflation stickiness remains stronger and the term premium stays higher.

Not smart to short the dollar before “normalization”

In conversations with many overseas investors, the firm found that the market has formed two core consensus points for the “ceasefire trade”: buying steepening in US Treasuries and shorting the dollar.

The first consensus is steepening in the US bond market yield curve. The logic is very straightforward: once a ceasefire is reached, market expectations for the Federal Reserve to cut rates in the near term will reignite, pushing down short-end yields. At the same time, residual effects from elevated crude oil prices, together with increased government fiscal spending to manage the conflict and stimulate the economy, will lift inflation expectations and the term premium significantly—thereby raising long-end yields. Falling short rates and rising long rates naturally lead the curve to steepen.

The second consensus is a fall in the dollar. During the conflict, the dollar has been in high demand as a safe-haven asset. Once there is a ceasefire and oil prices stabilize, the safe-haven premium in US markets will be greatly reduced, and capital will reverse away from the prior safe-haven flows. In addition, the upcoming changeover in the Federal Reserve chair adds further unpredictability to US policy, accelerating the shift of funds away from the dollar.

But in the firm’s view, the first layer of meaning of a ceasefire is to reduce the probability of the “worst-case scenario”—for example, lowering the risk of a sudden tightening of credit conditions and repairing risk appetite. But what truly determines the rate and inflation “centers,” is whether the energy trade chain can move from “constrained, rerouted, and price-distorted” back to “predictable, deliverable, and financing-capable.”

This also explains a key judgment in the report: until energy trading normalizes, the relative advantage of US assets and the dollar may still be preserved.

The reason is not complicated—when uncertainty is higher, funds tend to favor markets with “more liquidity and depth.” And once the energy chain jams, global inflation and the term premium become even harder to push down.

US stock sector shake-up: money returns to banks, consumer, and capital goods

A switch in the macro environment will inevitably trigger a dramatic reshuffling at the sector level. The sectors abandoned during the conflict will become the leaders in the ceasefire recovery phase.

Since the outbreak of the conflict, technology and energy stocks have performed well, while consumer goods, capital goods, real estate, and non-US bank stocks have significantly lagged the broader market. The core difference behind this is that high energy costs, financing constraints, and elevated policy rates hit different industries to varying degrees and in negative ways.

But the cycle turns. “Assuming credit contraction can be avoided, bank stocks will outperform the broader market in the post-ceasefire phase.” Songzawa (Matsuzawa) Zhong emphasizes.

As energy trading moves toward normalization, expectations for global economic recovery will quickly intensify. At that time, capital goods and consumer-related stocks that are highly sensitive to the economic cycle will regain strong upside momentum. Meanwhile, the magnitude of the real estate market rebound will depend on whether bond yields can stabilize.

Japan’s predicament: the central bank is stuck in passivity; expectations for stock and FX are cut

For Japan’s market, a ceasefire by itself is not enough—the normalization of energy trading is the key factor that determines survival.

Japan is highly dependent on energy imports. Before energy trade recovers, a sharp contradiction emerges in Japan between imported inflation driven by high oil prices and weak domestic demand. This puts the Bank of Japan (BOJ) in a dilemma with no easy way out.

Matsuzawa Zhong said, “The BOJ will find it difficult to bring its policy rate to a neutral level, and market concerns about it being ‘behind the yield curve’ will persist.”

Because the central bank is forced to remain relatively restrained, inflation expectations will push up long-end yields. Therefore, it is expected that for a period after the ceasefire, the yield curve in Japan’s bond market will steepen (at least in the 10-year area), while the yen will continue to weaken, especially in cross-rate terms.

Based on pessimistic expectations for the long tail of stagflation, Matsuzawa Zhong comprehensively cut the core forecasts for Japan’s stocks and FX—fully lowering the targets for the Nikkei 225 index and the TOPIX index (for each quarter from 2026 to 2027), and simultaneously lowering its yen-to-US-dollar exchange rate expectations. He believes the yen will continue to face huge pressure in the near term.