According to Axios, Iran presented the US with a fresh deal regarding the reopening of the Strait of Hormuz – an offer that saw Asia-Pac stocks trade higher overnight, while modestly pared some of the recent upside. While this is progress, the diplomatic situation remains precarious, hence the tentative market reaction.
Also over the weekend, President Trump cancelled a planned diplomatic visit to Pakistan, and Tehran has made clear it will not negotiate under what it considers an atmosphere of threat. The Strait enters a third consecutive month of disruption, which you may recall the IEA already described as the largest energy shock on record.
The weekend’s other major headline was that a 31-year-old Californian man breached the outer security cordon at the White House Correspondents’ Dinner on Saturday evening and exchanged gunfire with law enforcement before being subdued. According to reports, one Secret Service agent was shot in the chest, but was protected by a bulletproof vest.
Central Banks: The Lull Before The Surge
While the calendar is light on data today, savour the quiet; a barrage of central bank announcements will dominate the week. The BoJ announcement takes centre stage tomorrow, with Wednesday welcoming BoC and . This is then followed by the BoE and ECB on Thursday.
Ultimately, markets are expecting all five central banks to keep their overnight policy rates on hold. What is far less clear is what signals each central bank will send about the months ahead. Frankly, making policy decisions amid ongoing uncertainty in the Middle East and with little economic data to work with is an unenviable task.
For the BoJ, a hold at 0.75% is all but certain, with odds of a rate hike at a mere 5%. I believe the case for this meeting will be the signals we receive from Governor Kazuo Ueda regarding future rate adjustments, particularly for June, which is currently a 50/50 coin toss on whether the bank hikes or holds.
We then have the BoC and Fed decisions. Like the BoJ, a hold is nearly fully priced in for the BoC at 2.25%. For the Fed, policymakers are expected to keep the target rate at 3.50-3.75%, and it is expected to be Chair Jerome Powell’s final press conference before nominee Kevin Warsh takes the helm next month. With no dot plot or updated SEP, the language in the statement carries more interpretive weight than usual. The central question is how the committee characterises the inflation environment.
The BoE then makes the airwaves and, as of writing, markets are pricing only 4 bps of tightening (15% chance of a hike) for this week’s meeting. March saw a unanimous hold at 3.75% – even the most dovish member, Swati Dhingra, stayed put – and with the MPC as much in the dark as anyone on the Middle East, another hold looks nailed on this week. Keep a close eye on the vote split: a 9-0 hold signals pushback against market pricing.
Finally, the ECB decision lands, and is expected to keep the deposit rate on hold at 2.00%. Markets are currently pricing in 60 bps of tightening. While inflation has increased, it is only marginally north of the central bank’s 2% target, with the core measure at just 2.3%, per the latest March reading. Therefore, if ECB President Christine Lagarde pushes back against this, it may prompt as traders price out some of the hikes.
Tech Earnings On Deck This Week
Five major companies report earnings this week, accounting for a huge share of the weightings in the and . Consequently, their forward guidance will be key to monitor.
- and kick things off Tuesday after the close, with cloud growth a key driver for both companies.
- and report Wednesday evening, coinciding with the Fed decision, which may sharpen the subsequent reaction and repricing.
- ends the week on Thursday after the close. The new CEO transition will draw attention, but China revenue and any early signals on earnings direction from incoming leadership are the more immediate price drivers.