Markets
The daily barrage of war-related headlines produced a noteworthy one from a market perspective. The Qatari energy minister Saad al-Kaabi in the FT warned that all Gulf states will soon be forced to shut down production and that a return to normal could take weeks to months even if the war ended immediately. “Everybody that has not called for force majeure we expect will do so in the next few days that this continues”, Kaabi said, adding that if the war continues for weeks it will bring down economies with higher energy prices, shortages of some (petrochemical, fertilizer) products and a chain reaction of factories that cannot supply. QatarEnergy, the world’s biggest LNG company (20% of world production), declared force majeure earlier this week, triggering a bidding contest for whatever output that remains. Kaabi predicts crude prices to rise to $150 a barrel in two to three weeks if the Strait of Hormuz remains shut. Gas prices would rise to around €120/MWh. His comments spark another energy price burst with Brent closing in on the $90/b barrier (a weekly +23%) and Dutch TTF gas jumping to €52 (+62%). That’s pushing up ECB rate hike bets even further with a 25 bps move more than discounted by end-2026. 3M Euribor futures underwent a colossal 40 bps weekly repricing: money markets just one week ago mulled additional rate cuts. Front-end European yields today surge 8 bps, bringing the weekly tally to a stunning +33 bps. Gains for long-term maturities vary between +1.5 (30-yr) to +21 bps (10-yr). European stocks, fearing the economic impact from a new energy crisis after not even having fully recovered from the 2022 one, slip around 1%. The euro is under pressure with EUR/USD entering the payrolls release near the lowest sub 1.16 levels since end-November.
The February labour market report greatly missed the +55k expectations with employment dropping 92k and the two previous months revised downwardly by 69k. A strike in the health care sector weighed on employment but does little to alter the overall view of what is a soft report. The unemployment rate climbed to 4.4% from 4.3% even as the participation rate eased from 62.1% to 62%. Wages grew at a slightly faster-than-expected clip of 0.4% m/m and 3.8% y/y, remaining (well) above the pre-pandemic average. The payrolls cast doubt on the state of the labour market, which an increasing amount of Fed officials, including the dove Bowman just yesterday, said was showing signs of stabilizing after weakening. US yields swapped earlier 2-3 bps gains for similar-sized losses but simply cannot ignore the sharp energy price rise. With “Brent hits $90” headlines dropping as we write, Treasury yields get back positive, further fueled by President Trump stripping the market of any hopes for a short-term deal with Iran in a Truth Social post. Instead he’s demanding unconditional surrender. US yields rise up to 3 bps, German rates extend daily gains to 11 (!) bps. The dollar’s payrolls kneejerk reaction lower was muted and temporary. European stocks double earlier declines to 2% and Wall Street opens around 1.5% lower.
News & Views
Switzerland plans a temporary VAT increase of 0.8 ppts for ten years starting in 2028 to address a significantly worsened security environment. The measure is designed to raise about CHF 31bn, which will fund stronger military and civilian protection against hybrid threats, cyberattacks, long range strikes, and infrastructure vulnerabilities. All additional revenue will flow into a new defense procurement fund, which can temporarily take on up to CHF 6bn in debt to accelerate key purchases, with all debt to be repaid by the end of the ten year period. The Federal Council aims for a required national vote in summer 2027, enabling the VAT increase to take effect on 1 January 2028. The Swiss franc holds near strongest levels on record against the euro in the risk-off market climate (EUR/CHF 0.9050).
The food price index of the Food and Agriculture Organization of the United Nations in February posted the first rise in five months. The overall index rose 0.9% compared to January. Still, the overall index was 1.3% lower compared the same month last year. Increases in the sub-indices of cereals, meats and vegetable oils more than offset declines in the indices of dairy and sugar. Even so, in a broader perspective, the overall price index still was 1% lower Y/Y and 21.8 % Y/Y below the March 2022 peak. Focusing on cereal prices, the index rose 1.1% but was also still 3.5% below the year-ago level. Amongst others, wheat prices rose due to heightened seasonal factors in producer regions in Europe and the US. Logistical disruptions in the Russian Federation and continuing tensions in the Black Sea region also contributed to the increase. Vegetable oil price accelerated 3.3% M/M, reaching the highest level since June 2022, with prices for palm oil, soy and rapeseed all adding to a higher level of this sub-index.
