After a horrid March, risk sentiment is ending the month on a more positive note, on hope that the war can end soon. But on the battleground nothing much has changed. US equities surge, global rates lower, oil lower

After a horrid March, risk sentiment is ending the month on a more positive note, on hope that the war can end soon rather than any sign that conditions in the Middle East have changed.  US equities have surged, rates are lower, and oil prices are down.  Most major currencies have gained against the USD overnight and the NZD is modestly higher at 0.5735.

Yesterday, Iran hit a fully laden Kuwaiti oil tanker anchored in the Strait of Hormuz outside of Dubai’s port, representing a further escalation in the conflict and highlighting how dangerous the area remains.

Also yesterday, the WSJ reported President Trump told aides he's willing to end the US military campaign against Iran even if the Strait of Hormuz remains largely closed.  This could see an earlier end to the war, leaving allies to “take the lead” on reopening the Strait. The market seemed to take this as a positive step, but it doesn’t solve the problem of reopening the Strait of Hormuz.

In an overnight NY Post interview, Trump claimed that the Strait of Hormuz would “automatically” open when the US leaves. Hmmm.  In the interview he expressed ambivalence as to whether the Strait reopened “I don’t think about it, to be honest” and “my sole function was to make sure that they don’t have a nuclear weapon”.

Trump posted on social media suggesting to those countries who can’t get fuel because of the Strait of Hormuz to go there “and just take it…the hard part is done”, adding “you’ll have to start learning how to fight for yourself, the USA won’t be there to help you anymore, just like you weren’t there for us.”

The average US gasoline price index ticked up through $4 gallon.  In percentage terms, US gasoline prices haven risen by more than most other developed countries because there is less excise tax to absorb the blow as higher oil prices flow into the retail price.  Surprisingly, US consumer confidence as measured by the Conference Board unexpectedly rose in March, up less than a point to 91.8.  However, the lift in the present situation index slightly more than offset a fall in the expectations index and one might expect next month’s figure to show a bleaker picture.

The JOLTS report showed job openings of 6.88m in February, in line with consensus, but a drop from an upwardly revised 7.24m in January.  Trends in the survey still pointed towards a softening in labour market conditions.

Annual euro area CPI inflation jumped from 1.9% to 2.5%, driven by higher energy costs while the core rate fell one-tenth to 2.3%.  Commentary from ECB GC members reads hawkish, with vigilance on the inflation outlook and keeping options open regarding hiking interest rates, including the possibility of moving as soon as the April meeting, where the market prices a slightly better than even chance of a 25bps hike.

Markets are trading as if the war will soon be over, based on Trump’s comments and within the last couple of hours Iran’s President was reported as saying that Iran was ready to end the war, while reiterating the country’s demands and seeking guarantees.  One translation noted, ”we have the necessary will to end this war by complying with its requirements, especially the necessary guarantees to prevent the recurrence of aggression”.

US equities have staged a strong rebound, with the S&P500 up about 2½% in early afternoon trading. The Euro Stoxx 600 index was up 0.4%, closing ahead of the quoted Iranian comments.

Oil prices are down in the order of 2-3%. Global rates are lower, with US Treasury yields down in the order of 4-5bps for the day.  The 10-year rate is trading near 4.3%. Foreign central banks have been selling Treasuries over the past month and now hold USD2.7tn in custody at the NY Fed, the lowest level since 2012.

In currency markets, more positive risk sentiment has seen the USD fall overnight against most of the majors. The NZD has recovered to 0.5735, while the AUD has edged towards 0.69.  EUR has rebounded the most, and NZD/EUR has slipped to 0.4970 while other cross movements are unremarkable.

Lower global rates yesterday pushed down NZ yields, with NZGB rates down 4-5bps and swap rates down 5-6bps. ANZ’s business outlook survey showed a plunge in activity indicators during the latter part of the month, for those respondents having more time to digest the escalation of the Middle East conflict, commensurate with barely positive annual GDP growth based on past relationships.  Similarly, year-ahead inflation expectations surged from around 2.9% early in the month to 3.7% late in the month.

On the economic calendar, US ADP private payrolls, retail sales and the ISM manufacturing survey are released tonight.  Japan’s Tankan survey is released today, amongst second tier releases elsewhere.

Jason Wong is the senior Markets Strategist at BNZ Markets.