Markets
The Iran war entered an interlude period. A “sufficient” amount of time remains before the cease-fire deadline runs out next Tuesday, allowing for backchannel diplomacy to do its part. Latest rumours suggests that a two week extension to the current deadline is the best to hope for. In the meantime, the US continues creating economic leverage with its naval blockade of the Straight of Hormuz and by indicating that temporary waivers to buy limited amounts of Russian and Iranian crude won’t be extended. The US and Israel (involved directly and indirectly via Lebanon) keep threatening a new round of military action if Iran doesn’t agree to US/Israeli terms. Something Iranian media/source suggest that country won’t do. As time goes by, we expect oil prices to gradually creep higher again going into next Tuesday’s deadline. Brent crude today moves from $95/b to $97/b. Despite the ticking clock, both in the conflict and when it comes to commodity supply, the ECB at the moment feels comfortable with a wait-and-see approach for its upcoming April policy meeting. Sub $100 oil prices remove a sense of urgency to frontload any tightening to counter upside inflation risks. That’s what we derive from the plethora of ECB speakers, including ECB President Lagarde, on the sidelines of the annual Spring Meeting from the IMF and Worldbank that’s currently going in Washington. The situation in Iran is the obvious caveat. Just look at how the tables have turned over the past week from a market point of view. Anyway, EMU money markets continues pricing out the likelihood of an April move which dropped to just 10% today. A June hike is the largely discounted base case with a second move by year-end. EMU and UK (same story) yield curve bull steepen with yields dropping up to 5 bps at the front end of the curve. The current interlude doesn’t bother stock markets with risk sentiment still bullish. Key European and US gauges add around 0.5%, but we warn for the changing balance of risks around that positioning as the stalemate between the US and Iran continues. EUR/USD made an attempt to settle above 1.18, but for a third session straight that proves to be a bridge too far. Today’s US eco data included low and lower than expected weekly jobless claims (207k from 218k vs 213k expected) and a consensus-beating Philly Fed Business Outlook (26.7 from 18.1). Much like yesterday’s US empire manufacturing survey, it showed a difference between strong growth in the month of April and slowing momentum in the 6-months ahead gauges. Prices paid and prices received are rapidly rising with companies expecting this to last in coming months.
News & Views
US crude exports surged to 5.2 mln barrels per day, weekly data from the US government showed today. It’s the highest in seven months, close to the record 5.6 mln bpd seen of 2023 and is to be compared with a maximum exporting capacity of 6 mln bpd. The strong climb narrowed US net imports of oil to just 66k bpd, which was a weekly record low in the series going back to 2001. Demand from Asian and European refiners for US oil picked up greatly in the wake of the Hormuz Strait de facto closure. Some 2.4 mln bpd sailed towards Europe while around 1.5 bdp headed to Asia. On an all-inclusive energy basis (eg. LNG, natural gas), the US has been a net exporter since 2019.
A study by the National Bank of Belgium seen by financial media outlet De Tijd concluded there’s no budgetary leeway for policy measures to cushion the energy shock, countering the argument that increased revenues (eg. through excise duties) create the room to do just that. The NBB calculated that the primary deficit would increase between €800 million and €1.3bln by 2028, depending on the strength of the energy shock. This is because of lower economic growth and higher inflation, which leads to higher public wages and social benefits through wage indexation. Because the latter effects comes with a lag, there is less of a detrimental or even a slightly positive impact for the running year. The NBB therefore urges the government to take into account the cumulative impact through 2028. It also warned that higher revenues through VAT (inflation) and excise duties (on gasoline and diesel) are highly uncertain and assume that consumers won’t change their behavior (eg. less driving). Any measures the De Wever government does want to take should in any case be limited, targeted and temporary.
