Markets
The Iranian headline roulette keeps on spinning. Within the space of two hours, the Associated Press first reported an agreement being in place between the US and Iran to extend their two-week truce. Afterwards both Iranian state media and Axios indicated that Iran nor the US confirmed those headlines. Same Iranian media did suggest that the country will meet with a Pakistani delegation today in continuation of this weekend’s collapsed talks in Islamabad. Before the cease-fire extension headlines, the Washington Post reported that the US was sending more military assets to Hormuz while Iran’s military warned that continuing the naval blockade would break the cease-fire. Anyone still following? Markets in any case gave up today, navigating stoic through the flurry of headlines. It of course comes on the heels of a massive turnaround since the biggest TACO the US President pulled as of yet. Both (US) stock markets and EUR/USD went full circle to and above end of February levels. It not only changes market positioning, but the risk assessment around it as well. We move for room for hope to room for disappointment.
Zooming in on the tiny market moves, we first and foremost see Brent crude prices stalling around $95/b. Daily changes on US, EMU and UK yield curves are limited to +1 bp. EUR/USD is currently changing hands at 1.1785 compared to yesterday’s close at 1.1795. The EuroStoxx50 corrects 0.5% after yesterday closing at its best level since March 2nd. Eco data failed to inspire with slightly stronger than expected, but outdated, February EMU industrial production data (+0.4% M/M after upwardly revised -0.8% M/M in January) and a consensus-beating US NY Fed empire manufacturing index (April). Details showed the priced paid index surging while the prices received index stabilized in the monthly series. In the 6-month ahead series, both of them are higher with the increase for prices paid being the sharpest since 2011. New orders and shipments were strong in April, but their growth pace is expected to slow in coming months. Employment showed the same divergence with the measure for current factory employment rising to the highest since end 2022, but expectations for the coming half year worsening.
News & Views
Hungarian monetary policymakers discussed but one option during the March meeting, ie. keeping the rate unchanged at 6.25%, minutes of the gathering showed today. The unanimous decision followed the council’s view that a stability-oriented approach was warranted in the current vulnerable period in order to achieve financial and therefore price stability in a sustainable manner. Maintaining the policy rate at a restrictive level was considered necessary for the time being whilst continuously analyzing the incoming macroeconomic data and financial market developments. The Hungarian central bank raised the inflation path compared to December. It linked the upward revision fully to the effects of the Iranian conflict on energy but added that the 3% (+/-1 ppt) target was still achievable in a sustainable manner in 2027H2. Several Council members, however, pointed out that the persistence of the energy market shock would be decisive in future decisions and risk assessments.
The IMF in its new fiscal monitor said global public debt dynamics did not improve in any material way last year while the Middle East conflict this year has further added a new source of fiscal pressure. Global gross government debt rose to nearly 94% of GDP in 2025 and will reach 100% by 2029, a level previously seen only in the aftermath of WW II. The IMF is not only concerned about the level of debt but also its trajectory implied by current fiscal settings. Deficits are high and/or rising due to spending pressures on everything from social needs over defense and strategic autonomy to rising interest burdens. It singled out the world’s largest economy, the US, to warn that the increase in Treasury supply is compressing the safety and liquidity premium. This in turn pushes up borrowing costs globally. US deficits averaged 6% over the past three years, gaps rarely to not seen in periods outside wars or recessions, with “no debt consolidation plan in sight”. The Washington-based institution also pointed to the danger of the US Treasury increasingly relying on short-dated debt, making it vulnerable for interest rate movements, as well as more volatile buyers (eg. hedge funds) swooping up the debt. All elements combined, makes US Treasuries vulnerable for a sudden repricing, the IMF said.
