Sample Category Title

BoJ Governor Kazuo Ueda said underlying inflation in Japan is expected to "accelerate moderately", supported by a tight labor market and evolving corporate pricing behavior. He emphasized that firms are becoming more active in wage and price setting, sustaining a cycle in which wages and prices rise in tandem despite near-term distortions.

Ueda acknowledged that government measures to curb energy costs are currently weighing on headline inflation. However, he stressed that the underlying dynamics remain intact, with labor shortages and stronger wage growth continuing to support inflation over the medium term.

On fiscal policy, Ueda downplayed the long-term impact of a proposed suspension of Japan’s food consumption tax. While the plan could temporarily lower prices, he argued that "rational consumers" would look beyond short-term measures, meaning the effect on medium- and long-term inflation expectations would be limited.

Markets

What a difference one tweet makes. US President Trump claimed he had very good and productive talks with Iran and ordered a five-day pause in military strikes. Iranian officials shortly afterwards denied any such talks having happened but did confirm mediation efforts were under way by other countries including Pakistan and Turkey. It’s impossible for an outsider to know how much is true, especially considering Trump’s war tactics from the recent past. The news hitting the wires contains mixed signals as well, to say the least. Thousands of US Marines are to arrive in the Middle East on Friday, which is now considered the new deadline for the Strait of Hormuz to reopen. Meanwhile Saudi Arabia and the UAE reportedly are inching towards joining the US in the fight against Iran. It could be leverage to push Iran quicker into a deal or the prelude of another escalation in the war. Either way, we’re not seeing the likes of Brent crashing further today. Oil prices, which curiously saw major volumes shortly before Trump’s announcement, dropped yesterday from as high as $114 to an intraday low of $96 before closing around the triple digit mark. It is recovering somewhat currently towards $103. Trump’s tweet also triggered a relief rally in core bonds, with both rate hike bets and inflation concerns easing somewhat. Net daily changes amounted to up to 10 bps at the front in Germany and half that in the US. UK gilts outperformed by tanking 15 bps. We remains cautious about the extent of the recovery. Regardless of any potential short-term truce/peace deal, there are still longer-term consequences tied to the weeks long closure of the Strait, in fertilizers and as a result in food to name just one. Rising food prices have an outsized influence on inflation expectations and may still warrant rate hikes even as the geopolitical situation has improved (which is still highly uncertain, to be sure). ECB vice-president to be Vujcic said they are vigilant for second-round effects (governing council member Radev already sees some indications of that) and warned that the economy and inflation is already departing from the baseline scenario towards worst-case scenarios. Gold prices, enjoying the yield détente, rebounded exactly on the 200dMA around $4100, paring an intraday drop of 10% to just 3%. Stocks shot up sharply with the EuroStoxx50 closing 1.3% higher and similar gains for the main WS indices. The US dollar retreated in the same risk on vein. EUR/USD crawled back north of 1.16. DXY and USD/JPY fell back below 99 and to 158.4 respectively. None of yesterday’s moves are extended in Asian dealings though, (rightly, in our view) highlighting a sense of market hesitancy to go all-in on Trump’s comments. March PMI’s today lose their usual significance for trading because of the developing geopolitical situation. That’s going to be the case for most economic releases for some time to come unfortunately.

News & Views

Japanese headline inflation in Japan declined more than expected in February to 1.3% Y/Y from 1.5%. The closely watched series ex fresh food eased from 2% to 1.6% Y/Y, the lowest level March 2022 and also the first time since that reference than it fell below 2%. The underlying measure ex food and energy price still held well above the 2% reference easing only slightly from 2.6% to 2.5%. However, the decline in headline inflation was mainly due to a lower prices for regulated energy prices with utility prices easing 8.1% M/M and 5.5% Y/Y. Food price inflation printed at -0.4% M/M and 4.0% Y/Y (from 3.9%). With both the underlying inflation holding above expectations and higher energy prices at risk of pushing prices higher (including the measure ex-fresh food) coming months, the case for further BOJ policy normalization/rate hikes remains in place. Markets currently see a change of about 60% of a BoJ rate hike at the next policy meeting on April 28.

Australia and the European this morning signed a trade deal that has been negotiated for about 10 years. In essence the deal removes most tariffs for European goods as is the case for nearly all exports of Austrian critical minerals. However, the agreement still sets quotas on some Australian food products, which is drawing criticism from the local agricultural sector. The agreement comes as both parties accelerated negotiations as they were confronted with the US raising tariffs on imports while China was seen as taking a too dominant position in the supply of critical minerals. At the same time, the two parties also singed a Security and Defense partnership to address global security challenges.

I don’t have time to finish a sentence before new headlines send markets upside down.

When I returned to my desk on Monday, Trump had given Iran a 48-hour ultimatum — with only a few hours left before it expired. After that, he said he would “obliterate” the nation’s power plants. Oil was up and the market selloff was deep.

By the time I posted my morning note and grabbed a coffee, Trump had made a major U-turn, saying he would give Iran five days of ceasefire following “very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East” — his words on Truth Social.

US crude tanked 10%, Brent fell nearly 9%, yields dropped, and equity markets rebounded sharply — as if the war were over and we could return to peace. Remember peace? It’s been a while.

Fun fact: Iranian officials said there had been no direct or indirect contact with Trump. (sad trombone).

So yes, Donald Trump ‘Chickens Out’—because the Iranian bite was probably too big to be swallowed, but him ‘chickening out’ won’t calm the game if Iranians don’t comply.

Therefore TACO optimism could hardly last. The idea that Trump can act alone and shape outcomes doesn’t hold if the counterparty refuses to engage. Any resolution in the Middle East is also contingent on Iran’s willingness to de-escalate.

The Strait of Hormuz remains effectively constrained, with only a limited number of tankers crossing the critical waterway, and oil is rebounding this morning — both Brent and WTI are up more than 3% at the time of writing. Equities are under pressure again, with Asian indices giving back earlier gains.

Trump’s five-day ceasefire is set to end toward the end of the trading week — no surprise. What happens next is anyone’s guess.

But yesterday’s price action suggests that investors are more afraid of missing a post-war rally — similar to the post-“Liberation Day” rebound — than of getting a few entries wrong. They continue to look for any hint of optimism.

Meanwhile, policymakers are watching through a more critical lens. European Central Bank (ECB) officials warn that the current energy shock could turn into stagflation if prices remain high and volatile.

In Japan, recent data showed inflation easing to near a four-year low, but the country’s largest labour group secured average pay rises above 5% for a third consecutive year — well above inflation — complicating efforts to stabilise price dynamics, especially alongside rising energy costs. The USD/JPY eased to 158 yesterday amid a broadly stronger US dollar following Trump’s unverified Iran announcement. The pair is rising again this morning, as the dollar rebounds more broadly on the realisation that Trump cannot unilaterally ease geopolitical tensions.

Market sentiment is fully dependent on war headlines and energy prices. Reactions are highly emotional: investors want the war to end, the latest selloff to be “the dip,” and to catch that dip. But uncertainty remains, and the TACO trade is only sustainable if Iran plays along.

So we wait — watching both headlines and data.

Today, we will get a first glimpse of how global economic sectors are reacting to rising energy prices and escalating tensions in the Middle East. Preliminary March PMI expectations mostly point lower, reflecting weaker demand and rising anxiety over a potential new energy shock and tighter monetary conditions.

• In Australia, both manufacturing and services PMI declined, with services slipping into contraction below 50 and manufacturing hovering near the threshold. Recall that the Reserve Bank of Australia (RBA) raised rates for the second time in a row at last week’s meeting.
• Japanese PMI figures also weakened, pointing to slower expansion in both services and manufacturing. The Bank of Japan (BoJ) remains on a gradual normalization path to keep inflation pressures in check.
• European PMI figures are expected to tell a similar story: softer activity amid higher energy costs and tighter financial conditions.

But softer-than-expected PMI data is unlikely to reverse the recent hawkish shift in central bank expectations. On the contrary, slowing growth combined with rising inflation pressures will fuel stagflation concerns and could weigh further on sentiment. In this environment, good news will be good news — and bad news will be bad news.

Looking ahead, even if the war were to stop today, repairing damage to Middle Eastern energy infrastructure would take time. Estimates suggest it could take months — even years — to fully restore output to pre-war levels.

As such, an energy-driven market shock would be harder to dismiss than a Trump-driven trade crisis — the backdrop against which the TACO acronym emerged. In that episode, Trump acted unilaterally, counterparts had limited leverage beyond negotiation, and eventual tariff rollbacks provided relief. The situation with Iran is fundamentally different.

That said, this remains a cautious view. Nothing prevents investors from buying like there is no tomorrow on any sign of optimism, overlooking risks, stretched valuations and margin pressures from rising energy costs.

In focus today

In the euro area, the March flash PMIs are released, which is the first growth indicator following the war in Iran. The manufacturing sector is expected to record a large decline to 49.6 from 50.8 as higher energy costs have likely lowered some production in March. The services sector is less directly affected by the energy increases in the short term, so we expect a smaller decline here to 51.1 from 51.9, thereby keeping the sector in growth territory.

From the US and UK, we also get flash March PMIs, which will shed further light on how rising oil prices are affecting global economic activity. Both countries are expected to report declines but remain in growth territory. Recent PMI data from the UK pointed to stronger economic momentum in Q1, while US data showed manufacturing slowing amid weaker output, prices and new orders.

In Hungary, the central bank is set to announce its Base Rate decision. We expect the rate to hold steady at 6.25%, aligning with consensus expectations.

Economic and market news

What happened overnight

In Japan, data has come in on the soft side, with composite PMI at 52.5 down from 53.9, driven by both manufacturing and service. CPI inflation, excluding fresh food, declined to 1.6% in February from 2.0%, marking the first time below the inflation target in four years. Fuel subsidies is a key driver, and the reality has changed a lot since February as PMIs reveal a marked increase in firms' input prices and the yen remains under pressure. We expect the next BoJ hike in April. Markets are pricing close to 50-50 for that.

In EU-Australia relations, a significant trade agreement has been finalised. The deal eliminates tariffs on nearly all European goods and Australian critical minerals, while introducing quotas for certain Australian agricultural exports such as beef and sheep meat. The removal of import tariffs on Australian critical minerals into the EU is expected to support the stabilisation of global supply chains.

What happened yesterday

The Middle East conflict triggered a shift in markets yesterday as the US announced a five-day pause in attacks on Iranian energy infrastructure amid reports of ongoing talks to end the conflict. Iran dismissed the claims as "fake news" but confirmed efforts to de-escalate tensions, while reports suggest direct negotiations may occur in Islamabad this week. Israel confirmed discussions to secure a deal addressing the war's objectives and "protecting vital interests," while a European official noted Egypt, Pakistan, and Gulf states are relaying messages between the US and Iran.

Markets saw relief from Trump's announcement, briefly sending Brent crude below USD 100/bbl, though prices remain elevated compared to pre-war levels. While easing tensions could drive prices lower, risks of a rebound persist as WSJ reports Saudi Arabia and the UAE are pushing US to continue to fight and are mulling joining the war.

In the US, Fed Governor Miran (voter) emphasised the need to wait for more data before adjusting the policy outlook. He maintained his stance on gradual interest rate cuts, revising his forecast from six to four cuts this year while raising his inflation outlook. This morning, we adjusted our Fed call slightly and now call for the final two rate cuts only in September and December this year (prev. June and September). Read more in Reading the Markets USD - War delays rate cuts, 24 March.

In the euro area, consumer confidence fell more than expected to -16.3 in March (cons: -14.2, prior: -12.2). Consumer confidence thus reached the lowest level since October 2023. Consumers are likely to be more cautious with spending due to the decline in confidence, which highlights the negative growth consequences of the war in Iran. The survey period is "generally the first two to three weeks of the month" according to Eurostat, so the effect of the war is captured, but as energy prices have continued to rise during the month the full effect is likely not captured yet.

Equities: Equities rebounded in a rare manner following a post from the US president that negotiations have been initiated and a five-day long halt to attacks will follow. European equities that were down south of -2.5% on Monday, rebounded 4.5% from low to high. The gains later faded, as Iranian officials denied that negotiations have been held. Nonetheless, equities closed higher with S&P 500 up 1.2%, small cap Russell 2000 up 2.3% and Stoxx 600 0.6%. Futures have however dipped back into negative this morning.

The sector preference was mostly reversal of geopolitical trades. Cyclicals led the gains, and primarily growth cyclicals as yields dropped, including tech and consumer discretionary in the lead. What is just as interesting is to see which sectors that did not rebound on the news. The real estate sector, one of the worst performers the last week, did not benefit from the drop in yields, but continued to underperform. Similarily, consumer staples that, believe it or now, have sold off more than industrials over the last month did not rebound either. To us, this is a sign that investors priced out some of the recession risk yesterday through the cyclicals, but that inflation and rate hike expectations are little changed. This can serve as a guide on what a TACO trade would like ahead.

FI and FX: It was quite the rollercoaster ride for market yesterday. From a tense opening, where oil prices were on the rise pushing the USD and yields higher to a sudden relief rally after US postponed attacks on Iranian energy installations citing productive talks to renewed rise in tensions as WSJ reports Saudi Arabia and UAE are pushing for the fight to continue. What was most striking yesterday was the development in EUR/NOK. The pair moved sharply higher in the morning - a move that did not reverse in the relief rally. The correlation to moves in energy prices has turned as risk assets have started to price a growing risk of recession should central banks tighten monetary policy on top of the energy supply shock.

Daily Pivots: (S1) 211.78; (P) 212.55; (R1) 213.50; More...

Intraday bias in GBP/JPY stays mildly on the upside. On the upside, Firm break of 213.28 resistance will resume the rally from 207.20 and target a retest on 214.98 high. For now, risk will stay mildly on the upside as long as 210.77 support holds, in case of retreat.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Firm break of 214.98 will target 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90. This will remain the favored case as long as 55 W EMA (now at 203.13) holds, even in case of another deep pullback.

Daily Pivots: (S1) 183.35; (P) 183.85; (R1) 184.51; More...

Intraday bias in EUR/JPY remains mildly on the upside for 184.75 resistance. Firm break there will resume the whole rise from 180.78 and target a retest on 186.86 high. For now, risk will stay mildly on the upside a long as 182.02 support holds, in case of retreat.

In the bigger picture, a medium term top could be in place at 186.86 and some more consolidations would be seen. Nevertheless, as long as 55 W EMA (now at 175.61) holds, the larger up trend from 114.42 (2020 low) remains intact. Firm break of 186.86 will pave the way to 78.6% projection of 124.37 (2022 low) to 175.41 (2025 high) from 154.77 at 194.88 next.

Daily Pivots: (S1) 0.8625; (P) 0.8654; (R1) 0.8676; More…

Intraday bias in EUR/GBP remains neutral for the moment. With 55 D EMA (now at 0.8682) intact, further decline is in favor. On the downside, firm break of 0.8611 will resume the whole fall from 0.8863 to 100% projection of 0.8863 to 0.8611 from 0.8788 at 0.8536. However, sustained break above 55 D EMA will turn bias back to the upside for 0.8788 resistance instead.

In the bigger picture, current development revived the case that whole rise from 0.8221 (2024 low) has completed at 0.8863, after rejection by 61.8% retracement of 0.9267 (2022 high) to 0.8221 at 0.8867. Sustained trading below 38.2% retracement of 0.8821 to 0.8863 at 0.8618 will confirm this case, and bring deeper fall to 61.8% retracement at 0.8466 at least. For now, medium term outlook is neutral at best as long as 0.8863 resistance holds.

Daily Pivots: (S1) 1.6469; (P) 1.6546; (R1) 1.6642; More...

EUR/AUD's break of 1.6594 resistance indicates that a short term bottom was already formed at 1.6125. Intraday bias is back on the upside for stronger rebound to 55 D EMA (now at 1.6769). Firm break there will target 38.2% retracement of 1.8554 to 1.6125 at 1.7053. Nevertheless, below 1.6413 minor support will bring retest of 1.6125 low.

In the bigger picture, fall from 1.8554 medium term top is seen as reversing the whole up trend from 1.4281 (2022 low). Deeper decline should be seen to 61.8% retracement of 1.4281 to 1.8554 at 1.5913, which is slightly below 1.5963 structural support. Decisive break there will pave the way back to 1.4281. For now, risk will stay on the downside as long as 55 W EMA (now at 1.7245) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9102; (P) 0.9124; (R1) 0.9154; More....

Intraday bias in EUR/CHF remains neutral for the moment. On the upside, firm break of 38.2% retracement of 0.9394 to 0.8979 at 0.9138 will extend the rebound from 0.8979 short term bottom to 61.8% retracement at 0.9235. On the downside, below 0.9067 minor support will turn intraday bias back to the downside for retesting 0.8979 low instead.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of rebound.

Daily Pivots: (S1) 1.1519; (P) 1.1579; (R1) 1.1674; More….

Intraday bias in EUR/USD stays neutral for the moment. More consolidations could be seen above 1.1408. But with 1.1666 cluster resistance (38.2% retracement of 1.2081 to 1.1408 at 1.1665) intact, further decline is in favor. On the downside, below 1.1408 will resume the fall from 1.2081 to 38.2% retracement of 1.0176 to 1.2081 at 1.1353. However, decisive break of 1.1666 will argue that the fall from 1.2081 has completed, and turn bias back to the upside for 61.8% retracement of 1.2081 to 1.1408 at 1.1824.

In the bigger picture, prior break of 55 W EMA (now at 1.1501) should confirm rejection by 1.2 key cluster resistance level. The whole up trend from 0.9534 (2022 low) might have completed as a three wave corrective rise too. Deeper fall is expected to long term channel support (now at 1.0528). Meanwhile, risk will stay on the downside as long as 1.2081 holds, even in case of strong rebound.