Sunset Market Commentary

Markets

Both markets and central banks (including the ECB) are trying to assess how (fast) higher oil prices and other supply chain disruptions will filter through to the economy. This will be a non-linear, bumpy (statistical) process. The ECB consumer expectations survey yesterday showed that consumers a preparing for a big and potentially longer lasting leap higher. ‘Hard’ EMU flash April CPI data will be published tomorrow, a few hours before the ECB policy decision. National data today brought a mixed, tentatively inconclusive picture on current pace of price increases. German HICP inflation rose a ‘softer’ than expected 0.5% M/M and 2.9% Y/Y (from 2.5% but with 3.1% expected). Spanish HICP inflation at the same time rose a higher than expected 0.7% M/M and 3.5% Y/Y. In both countries, domestic and harmonized data gave some divergent signals, making it difficult to already draw clear conclusions as the process of price adjustments is developing. The KBC nowcast for the April EMU headline HICP stands at 2.88% and 2.06% for the core. Today’s ‘mixed data’ didn’t change markets’ reaction function. Supported by yet another jump in oil prices (Brent almost $117 p/b), bear flattening continues with the German 2-y yield adding 6 bps and the 30-y little changed. Even so, the German 10-y yield (3.09%) easily cleared the 3% barrier and is within reach of the post-Iran top levels near 3.10/3.12% reached end March. The US yield curve in a similar move adds between 4.7 bps (2-y) and 3.5 bps (30-y). Again still only small USD gains as oil extends its ascent (DXY 98.85; EUR/USD 1.169). USD/JPY also gains only modestly, testing the 160 barrier. US and European equity indices show modest losses (Eurostoxx 50 – 0.6%; Nasdaq -0.3%) as markets await Q1 earnings from tech majors including Alphabet, Microsoft, Meta Platforms and Amazon after-market.

This evening, the Fed is widely expected to keep its policy rate unchanged at 3.50-3.75%. It will be the last meeting before Jerome Powell’s mandate as Fed chair expires on May 15, with the nomination process of his successor (Kevin Warsh) since this weekend finally ‘on track’. Still markets will look out whether Powell will stay as an FOMC member. Already, at the March meeting (with economic projections) Powell and the FOMC were cautious to give guidance on the rate path as the Fed considered itself ‘well positioned to determine the extent and timing of additional adjustments’. One can expect a similar approach today. US activity data, including labour data since the previous meeting held up well and don’t suggest that activity already dropped below potential growth due to the conflict in the Middle East. PCE Inflation (both headline and core) was upwardly revised in March and expected to proceed more slowly to target than previously expected. With higher energy prices and supply chain disruptions gradually filtering through, the Fed might give slightly more weight to inflation in its dual mandate of maximum employment and stable prices. With the policy rate close to, but still slightly above neutral level, a hawkish hold would be a ‘logical’ approach in current environment. Markets also take an agnostic view, basically pricing rate stability throughout this year and even well into 2027.

News & Views

Statbel announced that April Belgian CPI data won’t be published for the time being. The Index Committee’s decision failed to reach consensus regarding the calculation and publication of the monthly Belgian Consumer Price Index. It centers around the rapid pass-through of higher energy prices which according the Verbond van Belgische Ondernemingen (VBO), part of the committee, raises the wage cost for companies through automatic indexation. The first inflation estimate for Belgian HICP harmonized consumer prices amounts to 4.3% in April 2026 (up from 2.2%). Separately, Q1 GDP numbers published by the National Bank of Belgium showed economic activity rising by 0.2% Q/Q and 0.8% Y/Y (up from 0.1% Q/Q). Based on the preliminary estimate, the change in added value (compared with Q4 2025) amounted to -0.1% in industry, +0.4% in construction and +0.3% in services.

The Bank of Canada (BoC) held its policy rate unchanged at 2.25%. The outlook for domestic growth is little changed from the January projection. The Bank’s April forecast projects GDP growth of 1.2% in 2026, rising to 1.6% in 2027 and 1.7% in 2028 as growth in exports and business investment resumes along a lower trajectory. So far there is little evidence that oil prices have fed through more broadly to goods and services prices, but this still warrants close attention. Based on the assumption that oil prices will ease, inflation is forecast to come down to the 2% target early next year and remain around 2% over the projection horizon .Overall, the Governing Council is looking through the war’s immediate impact on inflation but will not let higher energy prices become persistent inflation.