Markets
Brent crude prices started creeping back up yesterday as the clock ticks down to next week’s Tuesday end to the current cease-fire between the US and Iran. Both parties dig their heels in the sand with back-channel diplomacy hoping for another twee week truce extension. In the meantime, the US keeps stepping up its economic warfare in Hormuz (naval blockade and not extending waivers on purchases of Iranian & Russian oil) aiming to make Iran almost unconditionally surrender to US demands. Bloomberg reported that people close to EU and Arab leaders feared that reaching a deal might take about six months. Immediately opening the Strait of Hormuz is key to restore energy flows and stop the developing global food crisis. The International Energy Agency also warned that Europe has maybe six weeks of jet fuel left. If supplies remain blocked, flight cancellations will be coming. IEA chief Birol added that we must start preparing for significantly higher energy prices if Hormuz is not reopened. More emergency oil reserve releases are under consideration. He also thinks that it will take approximately two years to reach pre-war production levels again. Brent crude moved from $94.5/b to almost $100 yesterday. They retreated to close near $98. US President Trump announced a 10-day cease-fire deal between Israel en Lebanon, but the value is low given that Hezbollah wasn’t involved. He keeps trying to talk up the market, saying that the war in Iran should be ending pretty soon. On Wednesday he suggested that the next two days were going to be amazing. Yesterday he changed that to “let’s see what happens over the next week or so” but still “going to see some incredible results”. At the moment it remains unclear whether US and Iranian delegations will meet again over the weekend. Given the empty eco calendar, the headline roulette will keep spinning and determine market action. From a risk point of view, we believe that positioning became overly bullish with risks of disappointment if the current stalemate drags on. Especially if Brent crude tips back above the $100 risk on/risk off switch. Approaching that barrier yesterday resulted in some fatigue on stock markets (ending between small losses and small gains) and FX market (1.18 barrier holding).
News & Views
The incoming Tisza administration in Hungary has articulated an economic program centered on the restoration of the rule of law and the modernization of the domestic business environment, in-house KBC analysis finds. A central pillar of this strategy is the immediate unblocking of approximately €18bn in frozen EU funds, roughly 10% of annual GDP. Tisza intends to achieve this by joining the European Public Prosecutor’s Office and conducting a rigorous audit of previous public procurement practices to reclaim siphoned state funds. Fiscal policy represents a shift toward progressivity and the support of SMEs. Proposed measures include lowering the personal income tax rate on minimum wage earners from 15% to 9%, while simultaneously introducing a 1% asset tax on individuals with net wealth exceeding HUF 1 bln. This redistributive approach is designed to increase household disposable income and domestic demand, which has been stagnant or contracting in recent years. Beyond these measures, Tisza’s manifesto outlined ambitions to adopt the euro by 2030, reduce the budget deficit to below 3% of GDP and transition away from Russian energy dependence by 2035. However, to achieve this, some degree of fiscal consolidation would be necessary, which could act as a drag on domestic demand in the short term. The proposed tax cuts might be difficult to implement given the challenging state of public finances, with the fiscal deficit at approximately 4.8–5% of GDP. The country’s heavy reliance on energy imports — four-fifths of its oil and two-thirds of its gas — adds further complexity, as dismantling Orbán-era price controls and energy subsidies risks weakening growth, while maintaining them would strain the budget.
The Financial Times, citing people familiar with the matter, reported that Germany will slash its 2026 growth forecast to 0.5% from 1%. The meagre expansion would mean a fourth consecutive year of near-stagnation in the euro area’s largest economy, dashing hopes of a public spending lead recovery. The government’s stimulus package is indeed the main impulse to this year’s limited growth, a government source told FT, with exports, domestic consumption and private investments all stagnating. The growth downgrade is the result of the Iran war, which lead to an energy price spike weighing on the country’s vast chemical and pharma industry. It comes on top of structural issues including a shrinking workforce, limited productivity growth and excessive regulation.
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