Markets
The long Easter weekend brought…: another deadline rescheduling by US president Trump for Iran to comply to a deal with the US. The US President wants such a deal to include freedom of navigation through the Strait of Hormuz to be concluded by 8 PM US ET today (02 00 AM CET tomorrow). Otherwise the US might start destroying Iranian infrastructure, including energy facilities and bridges. At the same time, US president Trump indicated that talks are continuing. Iran warned that it might retaliate by new attacks on other energy infrastructure in the Gulf region. For markets, in the meantime, it has become almost impossible to assess the potential outcome of this ‘new’ development in the conflict. Even so, at least it only intensifies dislocations across the oil market. Brent this morning again trades well north of $110/b (111.5). The WTI contract was squeezed sharply higher already before the weekend now even trading above Brent ($115.6/b). Other indicators of immediate delivery (Dated Brent at $141/b) show signs of ever growing stress. The reaction on other (US) markets yesterday again was a bit mixed. Probably we again should label this as some kind of ‘agnosticism’ in the first place. The US yield curve yesterday bear flattened with yields rising between 5.2 bps (2-y) and 0.7 bps (30-y). US data, including a sharp rise in the services ISM price series and fears for multiple supply bottlenecks (see below) probably added to the rise in yields. Despite all the uncertainty regarding President Trump’s new deadline, US equity markets illustrated investors’ rather agnostic wait-and-see bias. The S&P even closed marginally higher (0.44%). On FX markets, the dollar trades near the top of established ranges (DXY 100.1, USD/JPY 159.8 & EUR/USD 1.1535), but currently lacks the power to force any convincing break higher.
Asian markets this morning also trade with a guarded bias as visibility with respect to the next step in the Middle East conflict remains close to non-existent. One can expect this pattern to continue in US and European markets going in the overnight deadline. Even so, especially interest rate markets currently further err to the side that supply disruptions in oil but also other commodities have reach a degree that force the likes of the ECB into defending their inflation credibility not only with words, but with hard action in the very near future. First indications this morning again point to higher EMU and also US yields. Eco data in the current context probably are second tier. Even so, we continue to keep a close eye on indicators of inflation expectations. Today, the NY Fed inflation expectations (one year ahead) are another reference in this respect (expected to rise from 3% to 3.5%).
News & Views
US Payrolls (Friday) and the services ISM (yesterday) were published during the long Easter break. The US economy added a consensus-smashing 178k jobs in March (vs 65k estimate), with only a minor 7k downward revision to the previous two months’ figures. The three-month moving average increased to 68k, the strongest since April of last year and taking into account 133k jobs cuts in February. The health care sector added 76k jobs after a 4-week, 31k-worker, strike by nurses and health professionals in California and Hawaï ended. Leisure and hospitality added 44k jobs and is expected to keep contributing in coming months as the US hosts the football world cup together with Mexico this summer. Construction, transportation and manufacturing all rebounded from job cuts in February. The unemployment rate ticked lower (4.2% from 4.3%), but it coincided with a shrinking labour force (61.9% from 62%). Wage growth surprised on the downside, rising by 0.2% M/M and 3.5% Y/Y.
Growth in the US services sector slowed in March according to the ISM which went from 56.1 to 54. Details were mixed, but show an impact from the war in the Middle East with concerns around employment and prices paid. New orders and businesses activity continued to point to growth in coming months, but the pace slowing further. The employment gauge fell to 45.2, the first contraction in four months. Prices paid surged to their highest level since 2022 (70.7) in the largest one-month increase in over 13 years. There were 20 commodities reported up in price, 0 reported down in price, and 7 reported in short supply. Both the ongoing war and the US eco data flipped US money market bets from erring on the side of a rate cut by year-end last Thursday to more even positioning/small rate hike bets by yesterday’s close..
. On FX markets, the dollar trades near the top of established ranges (DXY 100.1, USD/JPY 159.8 & EUR/USD 1.1535), but currently lacks the power to force any convincing break higher.){kind=link}