Markets
After the unjustified optimism on an ‘orderly’ end to the conflict between the US and Iran going into the weekend, markets at the start of the new week are facing again a lack of visibility on the next steps in the conflict. This a fortiori applies to the conditions and the nature of any reopening of the Strait of Hormuz. Economic analysts in this context also have to resort to guesstimates on the timing of any repair of energy and other supply chain disruptions that will determine the economic fall-out on the world economy. The end of a two-week ceasefire Tuesday evening is the next high profile deadline. New talks are expected to take place ahead of this deadline in Pakistan. However, Iran reclaiming an earlier promise to open de Strait of Hormuz and the US maintaining the blockade of Iran ports and seizing an Iranian ship illustrate the division/distrust between the parties involved. Markets today show the logic Pavol reaction that can be expected in case of such a U-turn in sentiment. Brent oil, still the most symbolic pointer on potential economic disruption due to the conflict, hovers near $95/b to be compared with levels below $90 at some point on Friday. Despite the substantial repositioning compared to Friday, intraday volatility remained rather low. Is this again some kind of agnosticism on yet another U-turn in the scenario of the conflict?. Or is it markets holding some complacency/hope that the bar for both sides to return to outright military hostilities has become high? Time will tell. European equites return part of Friday’s gain (Eurostoxx 50 -1% after a 2%+ gain on Friday). US indices open with losses of about 0.25%/0.5%. It’s all about assessing difficult to measure political probabilities, but also here, the damage/disappointment could have been more outspoken. Yields in the US and European opened higher, but momentum dwindled as the session continued. Markets are holding to the view that most central banks will take their time to assess the economic impact (both on inflation and growth) before adapting policy when deemed necessary later. Next week’s policy meetings of the Fed, the ECB and the BoE in this respect are seen as coming too already to trigger any preemptive action, especially with oil prices holding below $100/b. US yields today add between 0.5 bps (30-y) and 1.5. bps (2-y). EMU swap yields are rising between 4 bps (2-y) and 1.5 bps (30-y), only a fraction of Friday’s decline. On FX markets, the dollar failed to extend/hold gains at the open this morning. DXY trades near 98.2, with any bottoming out process still lacking any convincing follow-through price action. EUR/USD after an early session dip trades little changed near 1.1765. USD/JPY gains modestly (158.7), with underlying yen softness still keep the pair within reach of the 160 barrier. The US currency apparently ‘needs’ higher risk-aversion and/or higher oil prices to really regain momentum.
News & Views
Canadian inflation accelerated from 0.5% M/M to 0.9% in March with the annual number jumping from 1.8% to 2.4%. Markets feared an even bigger rise (1.1% M/M & 2.6%). Details showed gasoline prices rising by a record 21.2% M/M and oil prices by 2.6% M/M. Core inflation (ex-food and energy) rose a modest 0.1% M/M & 1.9% Y/Y, also printing below consensus (2.2% Y/Y). The Bank of Canada’s preferred trimmed mean slowed from 2.3% Y/Y to 2.2% Y/Y. There remained lingering base-year effects from the GST/HST break which ran from December 2024 to February 2025, resulting in downward pressure on headline inflation in March 2026. The Canadian central bank is expected to hold policy unchanged when it meets next week. Governor Macklem last week indicated that his main concern is longer-term inflation expectations. He sounded vigilant in not allowing the energy shock to spread.
Slovenia PM Golob admitted that his party was unable to form a government. Golob’s liberal party won last month’s national election by a razor-thin margin. The Freedom Movement won 29 out of 90 seats, beating outgoing PM Jansa’s (Orban ally, Trump adept, Russian sympathy) populist party which secured 28 seats. Jansa might now seek a return to office by setting up a centre-right coalition. He earlier indicated all options were comfortable for his party, forming a government, remaining in the opposition (ruled out now) or participating in new elections.
