Markets
Oil prices jumped and stocks fell yesterday. It was renewed risk off following the reopening and then closure by Iran again of the Strait of Hormuz and the seizure of an Irian-flagged vessel by the US over the weekend. A barrel of Brent shot up to just shy of $98 at the open before prices started easing slowly throughout the session with a closing price of $94. We’ve witnessed some volatility in late European dealings after president Trump warned it’s “highly unlikely” that the ceasefire would be extended. The two-week truce deadline was widely assumed to be tonight (US time) but Trump yesterday talked about it lapsing Wednesday evening (US time again). The extra day is helpful with both sides, in public at least, showing little signs whatsoever of being on the same page. Some are calling the bluff though and put comfort from Iran – reportedly, we should add – sending a negotiating team to Islamabad after all for a second round of talks today. It may help explain the intraday oil price cooldown as well as the limited drop in US equities in particular. Wall Street fell no more than 0.25%. Core bonds fell with Bunds underperforming Treasuries. German yields rose between 0.4 and 5.1 bps in a bear flattening move. It’s keeping some speculation for an April ECB hike alive but with president Lagarde repeating yesterday that more data is needed, it’s becoming ever unlikely. As long as oil prices stabilize below $100, the central bank could wait and see how things play out first. “So far, we have not seen energy prices rise far enough to push us squarely into our adverse scenario.”, she said. US rates finished marginally higher at the frond end of the curve. The US dollar’s initial strong performance faded during the day. EUR/USD recovered from the lows around 1.173 towards but below the 1.18 barrier. DXY lost some territory. The 98 barrier survived though.
President Trump pushed the deadline a day further in time so that means an additional 24 hours of twiddling thumbs and potential lacklustre trading (not taking into account any possible explosive headlines and tweets). Green equity futures suggest there’s some hope for things not to escalate. In these circumstances it’s impossible to predict the outcome, so the best thing markets can do is how things went in the past. And that more often than not involved TACO. While investors gauge the geopolitics, some attention should also to go the economic calendar. US March retail sales are scheduled for release. The expected boost to the headline print is largely energy-driven since the series are unadjusted for inflation. We’ll be monitoring the underlying series for an actual (early) impact of the Iran war on consumer spending. Trump’s nominee for next Fed chair Warsh will testify before Congress, offering him a chance to map out his view of the institution and policy going forward. Warsh’s appointment is not yet rubberstamped though with one key Republican Senator opposing until the DOJ’s probe into current chair Powell ends.
News & Views
New Zealand inflation accelerated from 0.6% Q/Q in Q4 2025 to 0.9%in Q1 2026 (vs 0.8% consensus estimate). Higher petrol prices were the largest contributor, being up 3.5% Q/Q. Rising costs for pharmaceutical products (+17.7% Q/Q) was another strong driver of quarterly inflation. Other details showed tradeable (goods) CPI sticky at 0.7% Q/Q while non-tradeable (services) CPI accelerated from 0.6% Q/Q to 1.1% Q/Q. On an annual basis inflation held stable above the Reserve Bank of New Zealand’s 2-3% target band, at 3.1% (vs 2.9%). For a third quarter in the row, electricity was the largest upward contributor to the annual number, rising by 12.5% Y/Y. Due to the impact of the war in Iran, NZ CPI is expected to rise further above target in Q2, posing the RBNZ with a dilemma in light of weakening growth and rising unemployment (Q4 2025 unemployment rate was the highest since Q3 2015). NZ money markets attach a 40% probability to a rate hike in May when the central bank publishes new quarterly forecasts. By the following, July, meeting, a 25 bps rate increase is fully discounted. NZD/USD this morning tests the recent tops around 0.5925.
Bloomberg reports that technical tests of the Druzhba pipeline are set to take place today. The pipeline supplies Hungary and Slovakia before it was damaged by a Russian attack in January. Previous Hungarian PM Orban tied the start of disbursements of a €90bn loan to Ukraine to the resumption of oil flows. The new government showed readiness to lift this block immediately if oil shipments restart. Last week, Slovakian PM Fico also changed tack by saying that he will not disrupt EU unity on the loan for Ukraine.
. Green equity futures suggest there’s some hope for things not to escalate. In these circumstances it’s impossible to predict the outcome, so the best thing markets can do is how things went in the past. And that more often than not involved TACO.){kind=link}