The CIO’s view of the week ahead.
President Donald Trump said the US would close the Strait of Hormuz to Iran’s exports after negotiators failed to clinch a deal at talks in Pakistan, raising uncertainty over the durability of their ceasefire. Iranian officials said the direct talks were over, but discussions look likely to continue via intermediaries. Differences over Iran’s nuclear ambitions proved to be the main stumbling block at the weekend negotiations.
The initial two-week ceasefire, which aimed to allow talks on a longer-term deal, was the catalyst for a market rebound last week, and the VIX volatility index fell below pre-conflict levels. Now, the announced US naval embargo threatens to unnerve global energy markets, though Trump previously backed down from his threat that “a whole civilization will die tonight”, which he made before the ceasefire—a truce that Iran agreed to after China reportedly intervened. Iran had aimed to be paid for passage of the Strait in cryptocurrency.
Highlighting the economic fallout from the conflict, US consumer sentiment hit a record low in early April. The S&P 5001 rose 3.6% last week. In the UK, the 10-year gilt yield touched 5% for the first time since 2008 as soaring energy costs reignited expectations of interest rate hikes.
In Hungary, Prime Minister Viktor Orban conceded defeat in parliamentary elections in a potential step towards further European integration.
Quote of the week
Minutes of the Federal Open Market Committee’s (FOMC) 17-18 March meeting showed that “participants emphasized the importance of being nimble in adjusting the stance of policy in response to incoming data, the evolving outlook, and the balance of risks.”
Key data
The University of Michigan consumer sentiment index hit a record low of 47.6 in early April on fears over rising energy prices. US consumer price inflation jumped to 3.3% in March, its highest level in two years, almost entirely due to the largest ever monthly risein gasoline prices and fuel oil. Core CPI was weaker than expected (+0.2% month-on-month).
In China, the producer price index turned positive for the first time in more than three years.
In Japan, inflation-adjusted real wages rose 1.9% year-on-year in February, marking the fastest pace of growth since 2021 and exceeding market expectations of 1.3%. Regional confidence surveys and the March Tankan survey point to a deteriorating outlook in the coming months.