Markets
As was the case already over the previous four weeks, trading is pushed back and forth to the tunes headlines on the latest developments in the Middle East and the many guesstimates what it might mean for the economy, for prices and for (monetary) policy. As always in markets, this has also to be put against what participants assess is already priced after four weeks op ‘position adjustment’. A murky complex. Yesterday headlines on a 15 points US proposal reportedly delivered by Pakistan to Iran, caused markets to err to the side that enough bad news was maybe discounted. 24 hours later, markets see the glass half empty again. The focus (re)turns to headlines of Iran not really considering the US proposals, the country claiming payments for war damages and de facto control over the Strait of Hormuz (including a transit fee) and the US reportedly still moving more troops to the region. Admittedly, most of this news was already available yesterday, but the perspective today is different. US President Trump stepped up pressure on Iran today as he urged the country to better get serious soon (on reaching a deal with the US), before it is too late. Otherwise there is no turning back. This doesn’t sound as parties engaging for serene negotiations. Broad-based risk-off is back. Brent oil trades at $106 p/b. The Eurostoxx 50 cedes 0.75%. The S&P 500 declined about 0.5%. Losses were bigger at the open, but in the current environment, market quotes are always conditional to the next headline on the war. Sentiment during US dealings improved slightly on a report that Iran responded to the US proposal. US yields are rising between 1.5 bps (30-y) and 5 bps (5-y). German yields add between 8.5 bps (5 & 10-y) and 5.5 bps (30 y), the belly of the curve underperforming. So, after recent sharp rise in short-term yields, 5 and 10-y tenors are at least as much affected as the (monetary-policy) related short end of the curve. Interpretation isn’t that evident, but it might suggest that markets feel that, with our without decisive central bank action, risks are growing for inflation to stay higher for longer. A similar pattern today is visible on the UK yield curve (rises between 8 bps (2-y) and 10 bps (5-10-y)). Compared to the swings on other markets, moves in the major currency cross rates remain relatively modest and orderly. DXY gains from 99.64 to 99.80, but stays away from the top since the start of the war (100.54). EUR/USD declines marginally (1.155). USD/JPY (159.55) continues challenging the 160 barrier. Sterling again is holding up fairly well with EUR/GBP even easing slightly (0.864).
News & Views
The Norges Bank left its policy rate unchanged at 4%, but made a U-turn on its forward guidance. In January, they indicated that policy rate would be reduced further this year if the economy evolved as envisaged. Now NB assesses is that the inflation outlook implies a rate hike at one of the forthcoming policy meeting. Inflation has remained above target for several years, and the outlook indicates it will be higher ahead than previously projected. Underlying inflation is projected to average 3.3%, 2.8%, 2.2% and 2.1 over the 2026-2029 policy horizon, up from 2.7%-2.4%-2.2% (2026-2028) in December. The job of tackling inflation has not been fully completed. The policy rate forecast indicates an increase to between 4.25% and 4.50% by eoy 2026 with first rate cuts only seen towards end 2027, depending on uncertain economic developments. Norwegian money market currently attach a 61% probability to a 25 bps hike at the next, May, meeting. The Norwegian swap curve extends its inversion with yields rising by up to 9 bps for the 2-yr tenor. The NOK trades stronger at EUR/NOK 11.13 with higher oil prices helping offset the impact from weaker risk sentiment.
OECD published its interim economic outlook. Global GDP growth is projected broadly stable at 2.9% in 2026 before edging up to 3% in 2027, sustained by robust technology-related investment and gradually lower effective tariff rates. That’s broadly unchanged from the previous projection (2.9%-3%). Projections assume that the current energy market disruption is temporary, with prices easing from mid 2026 onward. Inflation pressures will persist for longer with G20 inflation now expected at 4% this year (from 2.6%) before easing to 2.7% in 2027. Simulations in the report explore a scenario where oil and gas prices rise well above baseline projections – by around a quarter in the first year and remaining elevated thereafter – combined with tighter global financial conditions. In this case, global GDP could be around 0.5% lower by the second year, while inflation would be higher by about 0.7 percentage points in the first year and 0.9 percentage points in the second. Central banks will need to remain vigilant and attentive to shifts in the balance of risks to ensure that underlying inflation pressures remain durably contained.
 policy. As always in markets, this has also to be put against what participants assess is already priced after four weeks op ‘position adjustment’.){kind=link}