Markets
No post-weekend gamechanger as the war between the US and Israel on the one hand and Iran on the other hand enters its fifth week. There were few indications for a real de-escalation anytime soon. For now, the US didn’t start any ground invasion. Still, a potential seizure of the Irian oil Island Kharg by US forces remains one of the options being considered. At the same time, the Iran allied Houthi’s from Yemen actively joining strikes against Israel and Iran attacking important aluminum facilities in Abu Dhabi and Bahrain only suggest ever growing risk to more supply chain disruptions including from a hampered passage in the Suez Canal/Red Sea. US president Trump in morning comments on social media also gave mixed signals at best. He indicated that the US is in serious discussions with the (new) regime in Iran, but that the US can still destroy Iranian energy infrastructure if the Strait of Hormuz isn’t immediately open for business. Oil prices, still our main pointer on markets’ assessment of supply chain disruptions don’t preposition for improvement. Brent at $115+ is testing the highest levels since the start of the conflict. The reaction on interest rate markets was a bit different from the earlier stages of the conflict. We didn’t see the exact trigger, but markets today apparently focused a bit more on downside growth risks rather than upside inflation risks. US yields decline between 8 bps (5-y) and 5 bps (30-y), building on a downside momentum that already started on Friday. On Thursday, US money markets priced a > 50% chance of a Fed rate hike further out this year. Currently, this scenario is again priced out. European yields follow the US trend, albeit at a distance, with German yields easing between 5.5 bps (5& 10-y) and 4 bps (2-y). Question remains whether the likes of the ECB will have the luxury to disregard higher inflation/ inflation expectations to cope with a potential negative impact on growth. Preliminary German inflation data for March confirmed the feared for jump in inflation with HICP inflation accelerating to 1.2% M/M and 2.8% Y/Y (0.4% M/M and 2.0% in February), marking the highest level since January last year. The benign reaction on bond/yields’ markets also gave some (remarkable?) relief to equity markets. The Eurostoxx 50 ‘rebounds’ 0.5%. US indices add about 0.70-0.90% at the open. Constructive but not enough to reverse Friday’s sell-off. The technical picture of most indices remains fragile anyway (e.g. S&P 500 sub 6500 area). Also a bit remarkable, despite the substantial decline in US yields (bigger than in EMU or the UK) and the rebound in equities (risk-on!?), the dollar outperforms. DXY (100.4) regains the 100-mark with the post-crisis top (100.54) within reach. EUR/USD drops further from 1.1515 to 1.1475.The yen is the exception to the rule. USD/JPY this morning at 160.46 tested the highest level since July 2024, but the yen rebounded after Japanese vice minister for international affairs Atsushi Mimura warned authorities will take decisive action if they see speculative action picking up (USD/JPY currently 159.5).
News & Views
Belgian inflation slowed to 0.12% M/M in March, but that still pushed annual inflation up from 1.45% Y/Y to 1.65% Y/Y. The most significant price increases in March concerned motor fuels and package holidays. However, electricity, meat, alcoholic beverages, hotel rooms and plane tickets have had a decreasing effect on the index. Energy inflation stood at -4.41% Y/Y from -7.89% in February. Other details showed food inflation at -0.88% Y/Y (from +0.68% Y/Y) and services prices going from 4.75% Y/Y to 4.86% Y/Y. Rent inflation decreased from 3.47% to 3.39%. Overall core inflation, excluding energy and unprocessed food stabilized at 2.71% Y/Y (from 2.78%)
The European Commission’s Economic Sentiment Indicator (ESI) declined from 98.2 to 96.6 for the eurozone. The Employment Expectations Indicator (EEI) fell from 98.8 to 96.4. Adding to the decline of February, the marked deterioration of economic sentiment in March drove both indicators away from their long-term average of 100. Consumer confidence plummeted from -12.3 to -16.3, the lowest level since October 2023. On the business side, construction confidence was moderately up while industry confidence remained broadly stable. Services confidence fell slightly with the biggest hit going to retail trade confidence. Managers’ selling price expectations were sharply up in all four business sectors (beyond long-term average), and strikingly so in industry. Consumers’ perceptions of price developments over the past twelve months increased moderately, but their expectations about price developments for the next twelve months surged.
