Markets
There’s still a role for diplomacy to end the war in the Middle East. It’s the main takeaway from the last couple of days during which geopolitical tensions rose again after a first round of talks collapsed over the weekend. The US naval blockade sparked Iranian outcry but hasn’t triggered formal retaliation just yet. It’s instead rumoured that Iran is considering a pause to its own shipments through the Hormuz Strait to avoid testing the blockade and undermine efforts for a second round of negotiations. These could be held as soon as Thursday. First signs of fresh talks emerged yesterday, pushing Brent oil back below $100. It’s staying there today ($98). European stocks build on yesterday’s intraday comeback by adding 1.1%. The EuroStoxx50 is closing in on the 6k barrier it lost since the war erupted. WS adds another 0.5%-1% with the S&P500 back at the level before the war. When Trump backed down on its own April 8 deadline last week, markets flipped more optimistic on the conflict and they haven’t really let go on that feeling since. Bunds catch up with Treasuries yesterday and push German yields between 2 and 6.5 bps lower in bull steepening fashion. US rates change less than 1 bp across the curve. The US dollar remains in the defensive against most G10 peers. EUR/USD pushes ahead to the next big figure north of 1.18, surpassing pre-war levels. DXY mirrors the move with a decline towards 98. The constructive risk sentiment supports the likes of sterling too, dragging EUR/GBP again below 0.87. Cable (GBP/USD) surges to the highest level since mid-February just shy of 1.36.
Some economic data featured the agenda today, although they didn’t leave any marks on trading. US March PPI missed expectations. The headline print was expected at 1.1% on surging energy prices but rose a more moderate 0.5%, nevertheless bringing the annual figure to a four-year high of 4% from 3.4%. Energy did spike 8.5% m/m and a nearly 16% rise in gas prices was responsible for almost half of the 1.6% goods price rise (most since August 2023), BLS said. Services prices stagnated and underlying PPI gauges showed sub-consensus gains of 0.1% and 0.2%. ADP’s employment measure registered an average increase of 39k per week in the four-week period ending March 28. It’s the fastest since ADP began compiling the data mid-2025. The remainder of the day centers around speeches by BoE governor Bailey and ECB president Lagarde, in which we’ll look for potential hints about their reaction function to structurally elevated energy/oil prices. The IMF in any case downgraded its world growth forecast as a result of the oil shock. The most optimistic projection assumes a short-lived conflict and a moderate gain in energy prices. GDP growth would amount to 3.1% (from 3.3% in January) and inflation would rise to 4.4%. In a middle scenario growth stands at 2.5% and inflation 5.4% while the severe one has <2% (= close to a global recession) and 5.8% penciled in.
News & Views
According to a draft document seen by Bloomberg News, the European Commission will put forward an “AccelerateEU” plan on April 22. It’s a policy umbrella used to accelerate electrification across the economy. The EC targets to increase electricity’s share of final energy consumption from around 23% today to 32% by 2030. Two crisis in the space of less than 5 years time underscore the danger of geopolitical volatility combined with Europe’s dependency on fossil fuel imports. The EU’s plan will be based on five pillars, including boosting coordination among member states on issues such as filling gas storage sites and releasing oil reserves, targeted support for consumers and industry, decreasing consumption of oil and gas, boosting electrification and spurring investments in the transition.
The International Energy Agency published its April oil market report. Oil demand is expected to contract by 80 kb/d this year, as the Iran war upends the global outlook. This is 730 kb/d less than in last month’s Report and a forecast 1.5 mb/d 2Q26 decline would be the sharpest since Covid-19 slashed fuel consumption. Demand destruction will spread as scarcity and higher prices persist. Global oil supply plummeted by 10.1 mb/d to 97 mb/d in March, with continued attacks on energy infrastructure in the Middle East and ongoing restrictions to tanker movements through the Strait of Hormuz leading to the largest disruption in history. Oil prices posted their largest-ever monthly gain in March. Soaring spot crude benchmarks and differentials outpaced futures markets in the process. Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy.
