GGMA Morning Brief: Stocks rally on ceasefire hopes / Powell sounds dovish / Tokyo inflation slows / Today: EZ inflation / US home prices, JOLTS & Chicago PMI / Fed speak
Good morning,
I hope all is well.
Here are the main market movers and overnight stories:
Markets: Stocks rally on ceasefire hopes
Markets whipsawed overnight as conflicting signals from the Iran conflict — an Iranian drone strike on a Kuwaiti crude carrier near Dubai and a Wall Street Journal report that Trump is willing to end the war even with the Strait of Hormuz closed — left risk sentiment torn. S&P 500 and European futures rose as investors latched onto hopes of a ceasefire. Still, Asian equities faded, with the KOSPI plunging and the MSCI Asia Pacific Index on track for its worst month since October 2008. WTI crude spiked to $107 on the tanker strike before paring most gains to trade around $103 after the WSJ report. Sovereign bonds continued their rally, with US 10-year yields falling 3 basis points to 4.32% after Fed Chair Powell downplayed near-term inflation risks from higher energy prices. China’s official manufacturing PMI returned to growth at 50.4, beating consensus. JGB yields dropped as well. Although the labour market data was better than expected, Tokyo inflation came in below the consensus estimate.
Source: Tradingview.com 08:25 CET
Trump To Aides: Willing to end war without reopening Hormuz
President Trump told aides he’s willing to end the U.S. military campaign against Iran even if the Strait of Hormuz remains largely closed, administration officials said, likely extending Tehran’s firm grip on the waterway and leaving a complicated operation to reopen it for a later date. In recent days, Trump and his aides assessed that a mission to pry open the chokepoint would push the conflict beyond his 4- to 6-week timeline. He decided that the U.S. should achieve its main goals of hobbling Iran’s navy and its missile stocks and wind down current hostilities while pressuring Tehran diplomatically to resume the free flow of trade. If that fails, Washington would press allies in Europe and the Gulf to take the lead on reopening the strait, the officials said. (WSJ – Continue Reading)
Powell says longer-term inflation expectations remain in check
Federal Reserve Chair Jerome Powell stated that longer-term inflation expectations appear to be under control as the central bank evaluates the impact of the US-Israeli conflict with Iran. Powell mentioned that officials might need to respond to the effects of the war, but this is not necessary at present, and that the Fed's policy is appropriately positioned to wait and observe the economic repercussions. He added that the Fed is monitoring the instability in the private-credit sector very closely and that a correction is underway. However, they do not see any links to the banking system that could trigger contagion. (BBG)
Tokyo’s core inflation slows, but war-driven price jump looms
Annual core inflation in Tokyo slowed to a nearly two-year low in March and stayed below the central bank's target for a second straight month, data showed on Tuesday, as the effect of fuel subsidies offset rising raw material costs from a weak yen. Analysts expect the slowdown to be temporary as surging oil prices from the Middle East conflict, as well as higher import prices from the weak yen, increase inflationary pressure and prod the Bank of Japan to raise interest rates further. (RTRS – Continue Reading)
Tokyo’s data serve as a leading indicator for nationwide inflation trends. The impact from the Middle East “will gradually become apparent, and if crude oil prices remain flat at the current level, there is a high possibility that overall inflation will rise to around 2.5% to 3% in the second half of the year,” said Kohei Okazaki, chief market economist at Nomura Securities. “If the yen weakens further, there may even be moments in the second half of the year when it exceeds 3%.” Teikoku Databank reported Tuesday that food and beverage companies will raise prices on almost 2,800 items in April, the most since October. (BBG)
Asia steps up bond support as energy shock sends yields surging
This month’s surge in Asian bond yields has triggered a surge in debt buying across the region, as governments seek to limit the spillover from higher energy prices into local borrowing costs. Governments and central banks from South Korea to India and Indonesia are ploughing funds into their bond markets to try to cap yields that have already risen to multi-year highs. Yields have been climbing amid concern that local economies will suffer from higher oil prices, as they are net energy importers. (BBG – Continue Reading)
Today’s Macro Roadmap: EZ inflation / US home prices, JOLTS & Chicago PMI / Fed speak
Euro Area Flash HICP — March (11:00 CET)
Headline inflation is expected to surge by ~0.8pp to 2.7% YoY, driven by a massive energy pass-through from the Middle East conflict. Weekly fuel prices through March already point to a large inflation boost. The key question is whether core inflation also accelerates or continues to moderate.
US CB Consumer Confidence — March (16:00 CET)
Consumer confidence is expected to decline further from 91.2, weighed down by the Middle East conflict, surging energy prices, and equity market weakness. Scotiabank suggests confidence “may be a bit more resilient than the UofM consumer sentiment reading” since the Conference Board is more driven by labour markets than gas prices. Of particular interest will be the labour market differential, which correlates reasonably well with the unemployment rate.
US JOLTs Job Openings — February (16:00 CET)
Job openings are expected to decline. Watch the quits rate for signs of wage growth or weakness.
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