Sunset Market Commentary

Markets

It was again a really hectic day at the start of the fourth week of the conflict in Iran/the Middle East. The ultimatum of US President Trump ‘obliging’ Iran to fully reopen the Strait of Hormuz around midnight this evening (European time) gave markets a nihil obstat to resume the Iran/risk-off/stagflation trade at the start of trading this morning. Brent oil trade above $114 p/b, European equities lost another 2%+. The dollar gained modestly but stayed away from more important resistance levels. Interest rate markets continued to guide central bankers (not the other way around) that their primary contribution to address the current crisis was to avoid this supply shock from translating into a new upward inflation spiral. The curve further bear flattened further with the US 2-y yield at some point rising an additional 11 bps. For German and the UK this was respectively 9 bps and 14 bps. While less affected in the bear flattening move, LT yields were not completely immune with fiscal sustainability considerations playing in the background. In this respect, intra-EMU spreads for the second day in a row winded substantially (e.g. about 10 bps widening of the German-Italian spread).Enter US president Trump, who potentially embarked on some kind of ‘TACO-Iran’ approach. The US president around noon European time, said he ordered the department of war to postpone any and all military strikes against Iranian power plants and energy infrastructure for a five day period, subject to success of ongoing (very good and productive) talks that the president said have taken place over the previous two days. Those constructive contacts were not confirmed by Iran yet. Whatever the status of contacts between the US and Iran, markets saw this as a sign that at least some of the feared for sharp escalation could be avoided, at least in the near term. The next evaluation point is end this week. Some of the recent, more aggressive positioning in the Iran/stagflation trade was unwound. US yields currently have swapped above-mentioned rises to currently trade 6.5 bps (2-y) to 3.5 bps (30-y) lower, admittedly still in very volatile trading. In Bunds the correction/reversal now shows yield declines compared to Friday between -13 bps (2-y) and -4.5 bps (30-y). For the UK, the daily easing stands at 20 bps (2-y) and -8 bps (30-y). Brent oil tumbled to currently trade near $100 p/b. The Eurostoxx 50 gains 2.5%. US indices also show gains of about 2% in a similar Pavlov reaction. The dollar eased about 1% intraday. EUR/USD tries to regain the 1.16 barrier. Is a genuine start on the path of de-escalation? Will it lead to a sustained solution to the disruption of energy supply (or multiple other supply chain distortions) anytime soon? It’s much too early to draw any conclusions. That also applies to the question whether central banks will get more room to assess the impact on inflation, on (lasting) second round effects or inflation expectations as determining factors in their reaction function. For sure a developing story, still at risk to other plot twists. To be continued.

News & Views

Belgian consumer confidence dropped sharply in March, from 1 to -6, the lowest since May 2025. Expectations on the economic situation in Belgium reached their lowest level since 2022 (-45 from -25) with fears of unemployment rising sharply (-3 from -11). On a personal level, households saw slightly gloomier expectations about their own financial situation (-3 from -2), whilst their saving intentions remain unchanged at 22. On Wednesday, the National Bank of Belgium releases its business confidence indicator. The Belgian debt agency conducted a regular OLO auction today. They raised a combined €2.87bn (vs €2.6-3bn target range) by tapping OLO 94 (€0.95bn Jun2032), OLO 106 (€1.08bn Jun2036) and OLO 71 (€0.84bn Jun2045). The auction bid cover was low at 1.26. Following today’s auction, the Belgian debt agency raised €19.17bn in OLO funding YtD vs the 2026 target of €51.6bn (37%).

National Bank of Poland governor Glapinski in an interview with the Wall Street Jorunal said that the central bank does not pre-commit to any future decisions. He emphasized data-dependence and remains fully committed to maintaining medium-term stability. Polish money markets stick with tightening bets over the next 12 months (three hikes discounted), implying a turnaround. The National Bank of Poland used the timing of its March policy meeting (March 4) to cut its policy rate by 25 bps to 3.75% before the developing Middle East conflict completely shut the window. Higher energy prices could add short-term inflationary pressures but also constrain output and activity with Poland being a net commodity importer. Poland enters the energy shock from a position of strength with a stable currency and easing price pressures. The relatively low amount of Polish exports to the US helped insulate the economy from Trump’s tariff policy.