Bonds and stocks rally

It was a positive day in markets with bonds and equities rallying as oil prices nudged lower, while Donald Trump indicated that US-Iran talks could resume in the next “day or two”. The dollar was on the back foot, giving up more of its recent ‘safe haven’ gains. The euro is trading just shy of $1.18 this morning, so essentially back to the levels prevailing immediately before the outbreak of the war in Iran at the end of February. Sterling has already broken above its pre-war levels against the US currency, trading at around $1.3560. It is also nudging higher against the euro, hovering just below £0.87 this morning.

Government bond markets rallied quite strongly yesterday. UK and German 2-year yields both fell by around 10bps, while equivalent US yields were down a bit less than 5bps. Yields further out the curve were also lower, with 10-year yields declining by about 4-8bps. Equity markets posted solid gains. European stocks closed more than 1% higher on the day, while the S&P 500 added about 1%, leaving it within touching distance of a new all-time high.

The IMF notes in its latest World Economic Outlook that, “after withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East”. Assuming the conflict “remains limited in duration and scope”, it expects global GDP growth to slow to 3.1% this year, from 3.4% last year, and to average 3.2% in 2027. Global headline inflation is expected “to rise modestly in 2026″ (to 4.4% from 4.1% in 2025)  before resuming its decline in 2027.”

ECB President Christine Lagarde says the central bank “has to be completely agile” in relation to monetary policy, and must “be ready to move (interest rates) in the direction that is required.” The market currently sees about a 20% chance of a 25bps hike at this month’s meeting (April 30th) and just over 50bps of hikes in total this year.

Looking to the day ahead, economic data due includes industrial production for February in the Euro area and import/export prices (March) and the NAHB housing market index (April) in the US. The Fed publishes its latest Beige Book survey, ahead of its monetary policy meeting later this month. A number of central bank officials are scheduled to speak over the course of the day.