In focus today
- Focus remains on developments in the Middle East, with strikes increasingly targeting critical energy infrastructure, keeping oil markets and risk sentiment on edge.
- Following yesterday’s numerous monetary policy meetings, attention now shifts to communication from central banks, as markets seek clarity on their future policy directions and responses to evolving economic conditions.
Economic and market news
What happened overnight
Overnight, China maintained their Loan Prime Rates as expected. We do expect more monetary easing over the coming months, though, as signalled at the National People’s Congress two weeks ago.
What happened yesterday
In the eurozone, the ECB decided to leave its key policy rates unchanged with the deposit facility rate at 2.00% as expected by markets and consensus. Lagarde struck a calm and balanced assessment of the implications of higher energy prices, which suggests that the ECB is not in a hurry to hike interest rates. We keep our call that the ECB remains unchanged at 2.00% in 2026 and 2027, with risks clearly skewed to the upside. We see a high bar for the ECB delivering a hike already in April. See more in: ECB Review: ECB remains calm; receive April meeting, 19 March.
The conflict in the Middle East escalated further, with Iran striking Qatar’s North Field LNG complex, raising concerns over prolonged disruptions to global gas supply. Iran also targeted Israel’s ORL and Bazan oil refineries in Haifa, though with limited damage. The developments mark a clear broadening of the conflict to critical energy infrastructure, underpinning the recent surge in oil and gas prices. On the diplomatic front, President Trump called on Israel to halt retaliatory strikes on Iranian gas assets to avoid further escalation. Meanwhile, in a joint statement and in response to rising energy prices, the UK, France, Germany, Italy, the Netherlands and Japan signalled readiness to safeguard shipping through the Strait of Hormuz.
For the energy market, yesterday was another tense day. European natural gas price rose sharply, and the oil price touched the high from last Monday of USD 118/bbl. The pressure on the oil price has eased overnight as US has sought to deescalate the situation. That said, the market will likely stay anxious heading into the weekend.
In the UK, the Bank of England kept the Bank Rate unchanged at 3.75%, as expected. In a hawkish surprise, the decision was taken unanimously. We continue to forecast two more rate cuts but kick them further down the road to July 2026 and February 2027. For more information: Bank of England Review – On hold in rare consensus decision, 19 March.
In Sweden, the Riksbank kept the policy rate unchanged at 1.75% as widely expected. The general impression was that the Riksbank tried to maintain stability. The Riksbank’s alternative scenarios were probably the most interesting in the report, especially given the sharp rise in energy prices. In the high inflation scenario, the Riksbank starts hiking during Q3 2026, peaking at 2.66%. Note that this peak remains within the Riksbank’s neutral range of 1.5-3.0%, raising questions about whether it is sufficiently hawkish for such a scenario.
Also in Sweden, the Origo inflation survey showed rising inflation expectations compared to December, especially in the 1-year term. CPI expectations for the 1-year term increased to 1.9% (prev. 1.4%), while CPIF expectations increased to 2.3% (prev.: 1.7%). Note that the responses were collected approximately 10 days ago.
In Switzerland, the Swiss National Bank (SNB) kept its policy rate at 0%, as expected. The bar for a change in policy rate remains high for the SNB, but they will “adjust its monetary policy if necessary”. The recent strengthening of the Swiss franc and the conflict in the Middle East led to the SNB noting that the potential for a foreign exchange intervention has increased.
In Norway, yesterday’s Regional Network Survey painted a picture of the mainland economy very similar to the last survey in December. Namely, an economy with modest activity- and employment growth and with capacity utilisation running close to a normal level. From a market point of view, the report was no smoking gun in terms of lifting the pressure on Norges Bank to hike rates. Instead, we now think Norges Bank next week will signal an extended period with unchanged policy rates with the new rate path embedding the next rate cut not before 2027.
Equities: Equities sold off sharply yesterday, albeit with significant regional dispersion, largely driven by developments and rhetoric surrounding the situation in Iran. Unsurprisingly, energy outperformed, despite pronounced intraday volatility in oil prices, which ultimately closed broadly unchanged on the day. Notably, the geopolitical risk premium is increasingly being priced further out along the oil curve, rather than in the front end.
Market internals pointed to a more defensive rotation, with downside moves broadening and risk-off characteristics becoming more visible at the index level. That said, underlying dynamics remain more nuanced. US banks outperformed, suggesting investors are not yet pricing a scenario consistent with a global, or even US, recession.
Similarly, several cross-asset moves deviate from a textbook risk-off regime and instead reflect reversals of prior positioning: gold declined ~5% and silver ~8%, weighing on materials. In contrast, software outperformed, reflecting limited energy intensity. Likewise, banks outperforming in the US together with small caps, with the Russell 2000 closing in positive territory. This morning, Asian equities are mostly higher, with Japan closed. European futures are higher, while US futures are marginally firmer, though still highly sensitive to ongoing fluctuations in oil prices.
FI and FX: The pressure on oil prices eased overnight as the US sought to de-escalate the situation. That said, the market will likely remain anxious heading into the weekend. The data calendar is thin today, and the focus will be on developments in the Middle East. In a Reuters article following the ECB conference yesterday, it was noted that the ECB might start debating policy tightening at the 29-30 April meeting and would not rule out a hike in April if energy prices continue to surge. Despite elevated uncertainty, we continue to expect the ECB to hold the deposit rate steady at 2.00% through 2026 and 2027, with risks clearly skewed to the upside. Thus, we recommend receiving the April meeting. Given the relative pricing of the upcoming ECB meetings compared to the Riksbank, we recommend flattening the SEK Sep26 vs. Sep27 FRA curve relative to Euribors.
