Sunset Market Commentary

Markets

Brent crude (June contract) trades volatile today, falling from $106/b to an intraday low just above $98 to currently $102. The move is testament to the fog of war currently created by often conflicting headlines on the next phase in the third Gulf War. Yesterday’s WSJ article (Trump looking to off-ramp without reopening Strait of Hormuz) and an Iranian news agency reporting that the country’s president signaled readiness to end the war triggered a short squeeze on stock markets. Israeli outlets also quote PM Netanyahu as saying that Iran is no longer an existential threat to his nation. It’s the first time he does so. Yesterday’s 2.5%-4% gains in the US spill into 2%-3% profit for key European gauges today. Hostile talk from the UAE (ready to military engage in efforts to unblock Straight) is met by new missile strikes coming from Iran. In the meantime, US president Trump threatened to pull from NATO in an interview with The Telegraph and suggested that the war could last for another 2-3 weeks. On social media, he sends a different signal than the tone of yesterday’s WSJ article. The US would be ready to consider a cease-fire when the Hormuz Strait is open, free and clear. “Until then, we are blasting Iran into oblivion or, as they say, back to the stone ages”. Tonight at 9 pm (3am CET tomorrow), he addresses the nation with an update on the Middle East conflict.

Core bonds initially joined the risk rally, but gradually gave up gains on the lack of visibility. US Treasuries even flipped to losses as US eco data surprised on the upside of expectation. The US economy added 62k jobs in March according to the private sector ADP employment report which headline retail sales rose by 0.6% M/M, be it in February. Growth in the control group, proxy for consumption in GDP calculation, also beat consensus at 0.5% M/M (vs 0.3%). The dollar cedes slightly more ground at EUR/USD 1.1610. US yields currently add 1 bp across the curve with German yields losing 1 to 2 bps. The latter needs to be compared with opening declines of more than 7 bps. UK Gilts outperform with the curve bull steepening. Yields shed up to 9.4 bps at the front end of the curve (2-yr). BoE governor Bailey pushed back against aggressive rate hike pricing. The central bank needs to act in a way that doesn’t harm the economy. The BoE should focus on jobs and growth too in the next MPC with Bailey also suggesting that businesses have less ability to raise prices.

News & Views

A fresh 21 Kutatokozpont poll less than two weeks before the parliamentary elections showed Hungary’s pro-European opposition party Tisza extending its lead over Orban’s ruling Fidesz party. 56% among the decided voters support the former whereas 37% rallies behind the incumbent government. This compares to the 53%-39% split in a poll from the same bureau around three weeks ago. A closely watched survey by Median last week signalled 23-point lead for Tisza which, if realized, would deliver two-thirds of parliamentary seats. It should be noted, however, that both 21 Kutatokozpont and Median are seen as having (close) ties with the opposition. That said, a recent survey by the independent Zavecz Research gives Tisza a 13-point lead. All CE currencies are having a good day today thanks to the broad risk-on mood but the Hungarian forint, supported by the polls, is taking a clear lead. EUR/HUF slides to 382.2. This compares to the recent HUF lows around 395+ which followed shortly after the Iran-related energy crunch.

Germany’s five most prominent economic institutes (RWI, Ifo, IfW, IWH and DIW) have downgraded their joint growth forecast for this year and the next while simultaneously raising the inflation prognosis. The latter was jacked up to 2.8% from 2% for this year and 2.9% from 2.3% in 2027 amid sharply rising energy prices. The economy is expected to expand by 0.6% in 2026, halve the 1.3% projected in September. The 2027 forecast was slashed to 0.9% from 1.4%. The country’s expansionary fiscal stance is helping to prevent a bigger slide, the head of forecasts at the Ifo institute said. Holtemoeller from IWH, however, was critical in the sense that “Up to now, a coherent reform policy, formulated as one piece and clearly showing the criteria by which all policy areas are being reviewed, is not recognisable”. Dany-Knedlik from DIW jumped in by adding that it was important to have the institutional framework creating the conditions under which hundreds of billions of earmarked government funds can actually raise productive potential.