Hopes for new Iran peace talks tempers oil gains
The US navel blockage of the Strait of Hormuz began yesterday. That saw oil prices opening higher yesterday morning, with a barrel of brent crude at over $102 while Asian and European equities fell back. However, claims from President Trump, later in the day, that Iran was reaching out to the US to ‘work a deal’ saw oil price gains tempered with brent trading back at $98/barrel while US equities gained. The euro edged up against the dollar over the course of the day, opening up at below $1.17 yesterday but rising to over $1.175 now. Against sterling, the euro was largely unchanged and still trading just above 87p. Sterling also made gains on the dollar, getting back above $1.35 for the first time since late February.
German and UK bond yields continued to back up yesterday, with 2-and 10-year yields increasing by 3-5bps yesterday with UK 10-years at 4.87% and German 10-years at 3.09% (though those yield rises are reversing this morning). US yields fell by a bps or two yesterday, with 10-year yields there trading at just below 4.3% . Equity markets in Europe saw daily losses, as the news of potential new peace talks came too late, with the Eurostoxx down 0.4% for the day and the FTSE down 0.2%, in contrast, US equities made gains with the S&P 500 up 1% for the day.
It will be a heavy week of central bank speakers and it started yesterday with a number of ECB members. Bank of France Governor Villeroy, one of the ECB’s historically more dovish members was out, commenting on a Bank of France survey that showed a greater number of firms were planning on increasing prices (though most indicating modestly) this month and that uncertainty among French business has risen to levels last seen during the start of the Ukraine war. He said the survey supported the view that growth should be resilient but that the inflation situation ‘calls for the us (the ECB) to be vigilant’ using a ‘code’ word used by the ECB in the past to suggest heightened risks from inflation. ECB President LaGarde said last month that the ECB would be ‘particularly attentive’ to firms planning selling price increases so the doubling of the number of French firms, to 23%, planning increases could also be a concern to her. More surprisingly, was comments from far more hawkish ECB member Vujcic, who in contrast to other members, said that while prices have increased somewhat, they are still ‘very close to the baseline scenario’ which, surprisingly, suggests he does not favour a rate increase in April, with markets pricing in a 40% chance of a 25bps increase currently.
In the US, Chicago Fed President Goolsbees said the length of the current oil shock was key. He said that ‘month after month’ of $90 or $100+ barrel of oil would have to factored in as if energy prices saw a sustained rise that could drive investment towards energy production but at a cost to consumers – which he said was the strongest element of the US economy. Goolsbee, who does not vote on the FOMC this year, said higher energy prices would spill over into higher food and transport prices and ‘don’t be surprised’ if we start to see a souring of US consumer sentiment.
On the slate today, we have NFIB small business optimism in the US as well as PPI data while there is a number of central bank heavy hitters out, including ECB President Lagarde and chief economist Lane and the BoE Governor Bailey as well as Greene and Mann from the MPC. From the Fed, we have Paulson, Collins, Barkin and Barr.