On Tuesday, new data showed that inflation in the Eurozone rose to 2.5% in March, up from 1.9% in February. The increase largely reflects the recent escalation in tensions between the U.S., Israel, and Iran, which has driven up energy prices in recent weeks. Rising energy costs were accompanied by increases in services, as well as food, alcohol and tobacco. The figures follow recent comments from Christine Lagarde, who indicated that policymakers are prepared to consider further rate hikes if warranted by the data, regardless of whether the current inflation spike proves temporary. However, core inflation – which excludes more volatile components – edged down to 2.3% from 2.4%, adding a layer of complexity to the European Central Bank’s outlook. The ECB is next scheduled to meet on the 30th of this month.
In China, authorities have welcomed a visit from EU lawmakers for the first time in eight years, in a move aimed at strengthening China–EU relations. The visit signals a diplomatic thaw following years of tension, which began to ease after China lifted restrictions last year on several European Parliament members imposed during a dispute over human rights. Discussions are expected to cover a range of issues, including challenges in the digital and e-commerce sectors, as well as ways to promote fair competition between the two regions.
Meanwhile, Donald Trump has continued to comment on the conflict with Iran. On Monday, he warned of potential strikes on Iran’s civilian energy infrastructure unless the Strait of Hormuz – a critical energy chokepoint that previously handled around 20% of global oil flows – is reopened following recent disruptions. However, in typical Trump fashion, these remarks were quickly followed by a more reassuring message suggesting the war could soon come to an end. At the time of writing, this shift in tone has contributed to a sharp move in markets, with Brent crude falling 13% since last night and Asian, UK and European equities opening higher. The FTSE, for example, jumped 1.8% and the Eurostoxx opened over 2%. The latest price action is revealing: markets appear primed for positive news. When signals point toward a resolution of the conflict, risk sentiment improves rapidly- suggesting that, once the war does conclude, conditions are likely to normalise.
Still to come this week we have US retail sales, manufacturing PMI, unemployment rate and non farm payrolls.
Nicola Tune, Portfolio Specialist
