Markets
Another round of TACO’s for everyone. US President Trump first extended the ceasefire deadline from April 21 to April 22 before announcing later it would continue indefinitely until Iran offers a new, unified proposal “and discussions are concluded, one way or the other”. Trump said he did so at the request of mediator Pakistan. The latest U-turn came on another day packed with mixed signals. A second round of US-Iran talks were scheduled for yesterday, but those fell apart before they even started. There was confusion whether or not Iran would send a delegation to Islamabad while vice-president Vance’s, who leads the US delegation, trip to Pakistan was first postponed, then paused and eventually cancelled. Meanwhile accusations of ceasefire violations were thrown in both directions. The US is also ramping up military presence in the region with a third aircraft carrier, the USS George HW Bush, three destroyers and about 10 000 troops expected to arrive towards the end of the month. With the (initial) deadline looming, it pushed oil prices up to more than $100. That’s going in reverse this morning again ($96.7). Stocks both in the US and Europe finished in the red but are preparing for a green(ish) opening, particularly on Wall Street. That said, the risk appetite is not as strong as it was on earlier Trump reversals, suggesting headline-trading fatigue, some lingering cautiousness or both. There’s indeed considerable uncertainty, not least because the US naval blockade continues to be in place. Iran’s foreign minister called it a violation of the ceasefire. The truce between Israel and Lebanon meanwhile is also increasingly fragile. Suffice it to say that there are too many moving variables to determine the outcome, especially on a daily basis. The US dollar is returning some of yesterday’s gains in technically insignificant trading. EUR/USD rises marginally to 1.175, DXY inches lower to 98.27. USD/JPY holds steady around Tuesday’s 159.3 close. Core bonds fell with the temporary oil price spike acting as an accelerant. US yields rose between 2.2 and 5.9 bps, flattening the curve. German rates added 0.1-6.4 bps in a similar shift. Gilt yields shot up almost 9 bps at the front. Inflation numbers in the country were more or less in line with expectations. A monthly 0.7% energy-related rise lifted the annual figure to 3.3% from 3%. Core inflation (3.1%) fell short of consensus (3.2%) but services CPI unexpectedly accelerated to 4.5% from 4.3%. Sterling barely moves (EUR/GBP 0.869), extending its long streak of uninspiring trading sessions. Apart from geopolitics, we’re looking at huge supply of ECB speeches, including from ECB president Lagarde tonight. Fed chair-to-be Warsh in its testimony before Congress yesterday had little concrete to offer (see also below). He steered clear of indicating short-term and/or aggressive rate reductions in a way president Trump would like him to. Warsh did say policy rates and the balance sheet should be working together. With him being against a bloated balance sheet one could see it as a hint for lower policy rates to compensate for the QT effect.
News & Views
The European Commission will today present and emergency energy package. Draft documents obtained by POLITICO show that the EU is primarily advising countries to use or tweaking existing laws. Proposed changes to subsidies rules will allow countries to cover up to 70% of the cost of wholesale power bills until December, and up to 50% of the extra fuel costs caused by the crisis for some sectors. The EC will also work with countries to develop targeted tax cuts to bring down energy bills. Other measures are more targeted at speeding up the EU’s climate agenda, increasing European coordination and reducing demand.
Fed chair nominee Warsh appeared in a testimony before the Senate Banking Committee yesterday. If confirmed, he said he would not be a “sock puppet” for US president Trump, vowing to be an independent actor in setting monetary policy. He said the central bank needed a new framework for dealing with persistent price pressures, without offering more specifics though it’s clear he wants a bigger role for (a leaner) Fed balance sheet. Warsh is not a big fan of forward guidance and suggested willingness to make changes to how the central bank communicates. Options include reducing the amount of post-meeting press conferences, limiting the number of speeches by Fed governors or modifying/abandoning quarterly economic forecasts and interest rate projections.
