Markets
Not to be the killjoy here, but so many questions remain following the dramatic U-turn in the Middle East conflict. The US and Iran have agreed on a two-week ceasefire, but no one knows when it actually starts. The US said the ceasefire is contingent on the complete, immediate and safe opening of the Strait of Hormuz chokepoint. Iran’s more guarded view suggests a limited reopening on the country’s terms (e.g. a tollbooth) and in coordination with its military. This turns something as economically so critical as the Strait into a political instrument. The longer-term implications of that could/should be a reason for concern. Another open question is Israel’s compliance. It supported the ceasefire but said it doesn’t apply to Lebanon and resumed strikes today. Iran’s 10-point plan that serves as a “workable basis” (for talks that start this Friday) however contains the explicit demand to end the war against “the axis of resistance”, a clear reference to Lebanon’s Hizbollah as well and Iraqi militias and Houthis in Yemen. There’s also huge uncertainty in terms of how quickly the stalled maritime traffic can and wants to resume. A ceasefire won’t resolve anything if shippers are not convinced the threat level has actually receded. It for sure doesn’t help that reports of attacks keep filtering in. While not unusual since ceasefire orders take some time to reach all parties involved, it underscores the fragility of the truce.
It’s a big disclaimer that markets couldn’t care less about. The sigh of relief overwhelmingly dominates the lingering risks & uncertainty. Weeks of rising tensions and a dramatic build-up to what would have been a major escalation also resulted in short covering, strengthening the rip higher. The basis lies in plummeting energy prices. A barrel of Brent oil was trading around $110 yesterday and around $92 today. Dutch natural gas prices collapsed by almost 20%. Risk assets are on a tear. Stocks in Europe surge more than 5% (EuroStoxx50) with American indices adding between 2.5% and 3.5%. Core bonds rally on easing rate hike bets, inflation risks and risk premia in general. Bunds hugely outperform Treasuries. The latter already anticipated something in late US dealings yesterday and another push today lowers yields by another 1.1-4.4 bps in bull steepening fashion. German rates are falling off a cliff with net daily changes varying between 9 and 25 bps. Front-end outperformance follows market implied probability for an April hike falling sharply from 70% yesterday to +/- 25% today. A cumulative 77 bps in hikes in 2026 as of April 7 gets reduced to 50 bps. Intra-European spreads narrow sharply, led by Italy and Greece. UK gilts join the rally. Yields slide 15-24 bps. The US dollar is the main laggard in FX space. The trade-weighted index fell from just south of 100 to 98.6. EUR/USD adds more than a percent to 1.1717, the highest since the Iran war erupted at the start of March. Sterling has the upper hand against USD (GBP/USD towards the March highs around 1.347) and the euro. EUR/GBP loses the 0.87 mark.
News & Views
Hungarian inflation accelerated to 0.4% M/M in March with annual inflation picking up from 1.4% to 1.8%. Both were below consensus estimates (0.8% M/M & 2.2% Y/Y). Electricity, gas and other fuel prices stagnated on a monthly basis but that’s because of the way a temporary utility allowance (Jan 2026) is accounted for. Household energy consumption data are available with a two-month delay so January consumption only enters domestic CPI statistics in March. Food prices declined by 0.1% M/M while services prices were up by 0.2%. Compared to March 2025, prices for electricity, gas and other fuels increased by 4.3%. Food prices stagnated while consumer durable prices were up by 2.7%. Services costs increased by 4.1% Y/Y. The Hungarian central bank (MNB) added that core inflation slowed from 2.1% to 1.9% Y/Y. Core inflation excluding indirect tax effects also decreased to 1.9%. Incoming inflation data was broadly in line with the projection in the March Inflation Report. The Hungarian forint already traded rather strong in the run-up to today’s extremely bullish risk session, eying this weekend’s elections. The forint adds to those gains with EUR/HUF testing the YTD low at 375.
Belgium’s Minister of Defense, Francken, today announced the establishment of a €2bn Defense Fund, a subsidiary of SFPIM International (Belgian public investment institution), to strengthen the country’s defense and security industry. The fund will support companies in scaling up production, strengthen strategic industrial capacity, and help keep jobs and expertise anchored in Belgium.
