Markets
After being wrongfooted on Friday, markets don’t want to get ahead of themselves again as the clock ticks down to tomorrow’s night end of the US-Iran cease-fire. Brent crude trades stoic at $95/b while the headline roulette keeps spinning. It’s still unclear whether Iran will send a delegation to Islamabad while US president Trump repeated to be ready to restart the military campaign if Iran doesn’t bend to US demands. He suggests that extending the cease-fire is currently unlikely. Core bond yield curves show some bear flattening with the front end of the curve moving 3 to 5 bps higher in Europea, the US and the UK. The dollar gets more breathing room below the EUR/USD 1.18 big figure while stock markets lose some momentum intraday. They currently trade with some minor losses. The waiting game gives us some time to grasp through today’s eco numbers, starting with firmer than expected March US retail sales. Headline sales growth accelerated to 1.7% M/M with all underlying core series beating consensus as well; including the retail sales control group (+0.7% M/M vs +0.2%). Sales growth was broad-based with 12 out of 13 categories rising. The numbers nevertheless need to be downplayed somewhat as they are to be adjusted for inflation. Nevertheless, we raise our in-house US Q1 GDP Nowcast from 2.45% Q/Qa to 2.57%Q/Qa. German (April) ZEW investor sentiment dropped sharply: from -62.9 to -73.7 for the current situation index and from -0.5 to -17.2 for the outlook. The latter is the weakest reading since December 2022. ZEW President Wambach warned that the economic consequences of the Iran war for the German economy go far beyond price increases. “Businesses are concerned about long-term shortages of energy supply, and this discourages investment and weakens the effect of government stimuli.”
The number of UK employees on payrolls declined by 11k in March according to tax data published by the Office for National Statistics. Consensus expected a flat reading. The estimated number of vacancies has decreased in the latest quarter. Early estimates for January to March 2026 suggest a decrease of 29k (3.9%), to 711k compared with October to December 2025, which is the lowest level of vacancies since February to April 2021. Separate and more dated data from the Labour Force Survey showed the unemployment rate in the three months through February unexpectedly sliding from 5.2% to 4.9%, but that was mainly because of people dropping out of the jobs market. Private sector wage growth slowed to 3.2% during the same time window. The release triggered a minor move lower in sterling this morning but it was rapidly reversed. It doesn’t alter the fact that the Bank of England will stay put when it meets next week. Markets are interested in reaction functions from the ECB and the BoE to help decide on the faith of EUR/GBP. For the past 10 (!) trading sessions, the pair has been locked in a tiny trading range between 0.8685 and 0.8730.
News & Views
• The Iran war through its economic consequences has cost France between €4 and €6bn so far, its finance minister Lescure said today. The sharp rise in bond yields alone is estimated to add an extra €3.6bn to the budget. French yields have risen between 30 and 50 bps since the onset of the war. Measures to help households cope with the energy price shock come on top of that. Given France’s perilous state of public finances, Lescure said they plan to fully offset the budgetary impact, amongst others via spending freezes.
The Bank of Japan is leaning towards keeping its policy rate unchanged at 0.75% at next week’s policy meeting, people familiar said, adding that it would communicate a hawkish stance. The status quo would come amid inflation being above target for several years and with inflation forecasts at the April meeting being jacked up to reflect the energy price surge. The people noted, however, that the central bank sees little need to rush to a hike when the geopolitical and economic outlook is still as fluid as it is today. Holding steady in April does increase the likelihood of a June move if the economy holds up. Money markets have already sharply reduced the odds for an April hike to barely zero with BoJ leadership (including governor Ueda) not fully embracing such a move in recent speeches. June odds currently stand at 70%+ while July is all but priced in. The Japanese yen continues to trade near but just below the USD/JPY 160 multiyear lows seen end-April. A deeply negative real rate and the nature (energy) of the geopolitical driven uncertainty prevents JPY to benefit from its typical safe haven status.
