Sunset Market Commentary

Markets

As bombings in the Middle-East continue, markets jump from headline to headline in search of something that might structurally change current dynamics. Today’s early focus went to Iran’s state-run Islamic Republic News Agency (IRNA). They said that deputy foreign minister Takht-Ravanchi commented in an interview with MS NOW on recent nuclear negotiations. The nation’s stockpile of highly enriched uranium “is the result of our practical achievements and that we are ready to get rid of it, provided we get something good in return”. Rewatching the interview, we couldn’t retrace those quotes. He did say that Iran is in defensive mode and that it didn’t had any contact with the US (or any other nation for that matter) since the start of the war. The IRNA article temporarily stopped the test of the $85/b area in Brent crude, but the correction lower didn’t went far. In the same vein, algo trading briefly lifted European stock markets into positive daily territory only to succumb those profits as the US trading session gained traction. The trade-weighted dollar spiked lower on the headlines, but that move won’t make it in this week’s highlights. Next talking points were an Iranian drone attack on Azerbaijan’s Naxcivan enclave which only broadened the conflict, Qatar reporting more missiles and drones being fired from Iran, UK PM Starmer confirming that UK jets were in the skies last night over Jordan and Qatar and the WSJ reporting that ship insurers are willing to work with US President Trump on the Straight of Hormuz cover. US defence secretary Hegseth will give a new press briefing later today.

The recap above highlights low visibility on the near or longer term developments in the conflict which Israeli and US officials say might last for weeks. In this context we err on the side of higher energy prices, weighing on both stocks and bonds and making USD the by default winner in FX space. For the record some levels which are prone to the developing story. EUR/USD holds around 1.16, so above first support at 1.1573. European and US equity indices currently lose about 0.5% with the EuroStoxx50 failing to really get away from the 5800 support area. The German yield curve bear flattens with yields adding between 3.7 bps (30-yr) and 10.2 bps (2-yr) with Minutes of the previous ECB meeting suggesting that the current policy rate allows enough flexibility to react to shocks. Current patience should not be mistaken for being hesitant to act or being asymmetric. The market implied probability of a September rate hike is now 50%. German Bunds and UK Gilts underperform US Treasuries today.

News & Views

Swedish inflation fell short of expectations in February. The CPIF headline gauge (using a fixed interest rate) eased from 2% to 1.7% vs 1.8% expected with the monthly pace coming in at 0.6%. Core CPIF missed the annual bar by the same margin with the 1.4% the lowest outcome since August 2021. The Riksbank itself had penciled in a much lower 1.3% in the December projections for the overall figure while expecting core inflation at 1.7%. Sweden’s central bank kept the policy rate unchanged at 1.75% during the end-January policy meeting and expects it to remain at that level for some time to come. We do not think today’s inflation numbers throw the Riksbank off-track. Sweden’s economy grew at a solid pace at the end of last year despite the large amount of (geopolitical) uncertainty, the central bank said, with household consumption continuing to rise and the labour market showing increasingly clear signs of improvement. With risks since this week clearly tilted to the upside, the Riksbank has every reason to wait things out. The CPI print barely left a dent in SEK. EUR/SEK is trading a tad higher in the 10.68 area.

UK CFOs in the Bank of England monthly Decision Maker Panel lowered their year-ahead inflation expectations by 0.1 ppt to 3.1% in the three months to February, the lowest since February 2025. The 3-year gauge inched lower similarly, to 2.8%. They reported annual wage growth at 4.3% (-0.1 ppt) and expected wages to grow 3.6% (unchanged) in the year ahead, implying a 0.7 ppt cooldown over the next 12 months. Annual employment growth was -0.2%, which was less of a contraction than the -0.5% in the three months to January. Expectations for employment growth over the next year improved slightly, rising by 0.3 ppts to 0.1%. It’s the first positive reading since August of last year. In terms of the central bank rate, the three-month ahead expectations indicator stood at 3.5% with the year- and three-year series printing at 3.2% and 3.1% respectively. It should be noted that the survey was conducted between Feb 6 and Feb 20, before the recent sharp increase in energy prices.