Trump Sets 48-Hour Deadline for Iran to Reopen Hormuz

In focus today

• In the euro area, the flash consumer confidence indicator for March is released, which will shed a first light on how consumer sentiment has reacted to the war in Iran and subsequent energy price increases.
• In Japan, February inflation is set to be released overnight. Fuel subsidies and subsiding food inflation has pulled inflation lower recently, with Bank of Japan’s preferred measure, CPI excl. fresh food, at 2.0% in January for the first time in two years. This trend will also be reflected in February data, but what matters now is the occurring loss of purchasing power as energy prices surge and imports become pricier amid yen weakening. A Bank of Japan rate hike is on the cards, and we expect it to come in April.
• The key market events this week are tomorrow’s March PMIs for the euro area, UK, and US, and Thursday’s Norges Bank meeting. We expect a hold at 4%, consistent with signals at the rate meetings in December and January. On Wednesday, Riksbank minutes from Sweden will be released. Developments in the Middle East will naturally remain central.

Economic and market news

What happened over the weekend

In the Middle East, geopolitical tensions are intensifying as ‘Operation Epic Fury’ enters its fourth week, with ongoing airstrikes in Tehran this morning. Late on Saturday, Trump threatened to “obliterate” Iran’s power plants within 48 hours if the Strait of Hormuz remains closed, while Iran has vowed counterattacks on US infrastructure across the region. An attempted strike on the US-UK base in Diego Garcia has sparked concerns over Tehran’s long-range missile capabilities. On Friday, the US issued a 30-day waiver for the sale of Iranian oil loaded on vessels into the US, while Iraq declared force majeure on foreign-developed oil fields.

Oil prices were about unchanged at the market open compared to the close on Friday with Brent crude trading above USD110/bbl.

In central bank space, last week’s packed meeting calendar was followed by mixed comments from policymakers. From the ECB, President Lagarde struck a balanced tone, likely reflecting divisions within the Governing Council. While Nagel hinted at a potential rate hike in April if inflation risks increase, other members appeared more measured, signalling a calmer approach compared to 2022. From the Fed, Governor Waller highlighted inflation concerns tied to oil shocks, suggesting caution is needed despite earlier dovish stances.

Equities: The risk-off sentiment that took hold last week lingers this morning. Asian markets have opened sharply lower this morning with Kospi -6%, Hang Seng -4% and Nikkei 225 -3%. Investors are reacting to Trump’s Truth Social post over weekend, where he threatened to strike Iranian power infrastructure unless the Strait of Hormuz is fully opened within 48 hours.

The escalation puts investors in a difficult spot. Unlike the destruction of Nord Stream in 2022, which imposed a lasting constraint, this episode has, until now, looked more transitory. However, if energy infrastructure is hit, the shock risks turning permanent. This explains the negative reaction in Asia this morning. However, conversely, if the US can take control of the strait, it would be taken as risk positive. For the moment, investors are left guessing.

Many major equity benchmarks slipped into correction territory last week. Japan, Europe, emerging markets and Sweden all down at least 10%, while the US is only about 5% lower. For global portfolios, that US resilience is a relief. However, for investors in Europe it removes a potential source of positioning support that might otherwise help a rebound. Our correction monitor is still not signalling oversold conditions. With neither positioning nor valuation providing a clear cushion – equities were expensive going into this – oil will continue to set the tone this week. However, we see the debate shifting more to growth and demand destruction than central bank repricing.

FI and FX: After NOK, the EUR was the best performing G10 currency last week – a surprising feat since the pressure on energy prices remained high. Speculation in an ECB hike already at the next meeting in April has sent EUR interest rates higher and kept the EUR well supported. US yields started grinding higher last week and the market started to have second thoughts on whether the Fed would cut this year. Energy markets will likely continue to set the tone for FX and FI markets this week.