Even if there is a "ceasefire," it does not mean "normalization." In 2026, the world will be more "stagflationary" than expected.

"Ceasefire transactions" can happen quickly, but the market may have to wait until energy trade resumes smoothly before it truly prices in a "return to pre-war conditions."

According to Wind Chasing Trading Desk, on March 27, Nomura Securities’ Japan team pointed out in its latest research report that a market narrative centering on “ceasefire negotiations” between the US and Iran is taking shape, but investors should pay closer attention to another variable: whether and when energy trade can "normalize". The “lag” between the ceasefire and normalization will make the investment environment in 2026 even more challenging than before the war.

"‘Ceasefire’ and 'energy trade normalization' are not synonymous." A ceasefire can indeed ease the market’s extreme pessimism about the economy and effectively prevent credit tightening in financial markets. However, before the path to restored energy trade becomes clear, oil prices, business confidence, and the outlook for monetary policy will all struggle to return to pre-war levels.

The report’s conclusion is clear: "In 2026, investors may have to operate under conditions more ‘stagflationary’ than previously expected." This means that even if the global economy is in a recovery phase, inflation and interest rate levels will be slightly higher than previously assumed, while economic growth rates and stock valuations will be relatively suppressed.

"More stagflationary" market pricing: Rate hike expectations rise across central banks

The market has already started to price in a “more stagflationary” world.

Due to sticky inflation, rate hike expectations are rising in all major economies. Currently, the market has priced in three rate hikes for the UK this year, two for Europe, and 0.5 for the US.

However, the author also questions: If oil prices just “remain high and flat,” does such aggressive rate hiking actually help suppress inflation? This remains “open for discussion.” In such a “stagflation-leaning” environment, central banks are prone to policy errors. If central banks hike too aggressively, the recovery is suppressed; if not enough, inflation becomes even stickier and term premiums rise higher.

Before "normalization", shorting the dollar is not wise

Through exchanges with overseas investors, the firm found that the market has formed two core consensuses around “ceasefire trading”: buying the steepening of US Treasuries and shorting the dollar.

The first consensus is the steepening of the US bond yield curve. The logic is clear: Once a ceasefire is achieved, expectations for a near-term Fed rate cut will reignite, dragging down short-term rates. Meanwhile, elevated oil prices’ lingering impact, plus increased government fiscal spending to address the conflict and stimulate the economy, will significantly lift inflation expectations and term premiums, pushing up long-end rates. Short down, long up; the curve steepens naturally.

The second consensus is the dollar declining. During the conflict, the dollar was a sought-after safe haven. Once a ceasefire is reached and oil prices stabilize, US markets’ safe haven premium will shrink, and funds will reverse previous risk aversion flows. Furthermore, the upcoming change of Fed Chair adds uncertainty to US policy, further accelerating capital outflows from the dollar.

But in the firm’s view, the primary significance of a ceasefire is to lower the probability of the "worst-case scenario": for example, the risk of sudden credit tightening decreases and risk appetite recovers. However, what truly determines the core of interest rates and inflation is whether the energy trade chain can return from "restricted, detoured, distorted pricing" to "predictable, deliverable, financeable" conditions.

This also explains a key judgment in the report: Before energy trade normalizes, the relative advantage of US assets and the dollar may still remain.

The reason is simple—the higher the uncertainty, the more capital gravitates toward "markets with greater liquidity and depth"; and once the energy chain is disrupted, global inflation and term premiums are even harder to fall.

Major shakeup in US stocks: Funds return to banks, consumer, and capital goods

Macroeconomic environment shifts inevitably trigger dramatic reshuffling at the sector level. The sectors abandoned during the conflict are poised to become leaders in the ceasefire recovery phase.

Since the conflict erupted, tech stocks and energy stocks have performed well, while consumer goods, capital goods, real estate, and non-US bank stocks have significantly underperformed. The main difference stems from how high energy costs, financing constraints, and high policy rates impact different sectors negatively.

But tides change. "If a credit crunch is avoided, bank stocks will outperform in the post-ceasefire phase," emphasizes Matsuzawa Chu.

As energy trade normalizes, expectations of global economic recovery will heat up quickly. Capital goods and consumer-related stocks, highly sensitive to economic cycles, will regain strong upward momentum. The extent of rebound in the real estate market will depend on whether bond yields stabilize.

Japan’s dilemma: Central bank is forced into passivity, cutting stocks and FX forecasts

For the Japanese market, a ceasefire alone is not enough; normalization of energy trade is the real key to survival.

Japan is highly dependent on energy imports. Before energy trade recovers, the sharp contradiction between input inflation caused by high oil prices and weak domestic demand persists. This puts the Bank of Japan (BOJ) in a difficult dilemma.

Matsuzawa Chu points out: “The BOJ will find it difficult to bring its policy rate to a neutral level, and the market’s concern that it will ‘lag behind the yield curve’ will persist.”

Because the BOJ is forced to remain relatively restrained, inflation expectations will push up long-end yields. Thus, it is expected that for a period after the ceasefire, Japan’s bond yield curve will steepen (at least in the 10-year zone), and the yen will continue to weaken, especially in cross-currency terms.

Based on pessimism for this extended stagflation, Matsuzawa Chu has comprehensively downgraded Japan’s core stock and FX forecasts—lowering target levels for the Nikkei 225 and TOPIX for all quarters from 2026 to 2027, and simultaneously cutting yen against dollar forecasts, believing the yen will remain under immense pressure in the short term.

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