However, even during last week’s trading, doubts arose about whether this situation could be maintained until the ceasefire expires (April 22). The first element increasing uncertainty was Friday’s tweet by D. Trump suggesting that the U.S. blockade of the Strait would be maintained. On Saturday, Iranian authorities restored “tight military control” over the waterway, justifying their decision with U.S. actions.
Since then, reports from the region have largely been pessimistic. Among other things, two Indian oil tankers transporting crude were shelled. In response, Delhi summoned the Iranian ambassador. Escalatory remarks also came from the Iranian president, who stated that the U.S. leader has no basis to strip Iran of its nuclear rights. It is still unclear whether another round of peace talks will take place in Pakistan this week. On Sunday, the U.S. side issued conflicting statements about who might potentially participate in negotiations.
Ultimately, Washington will be represented by a delegation led by Vice‑President Vanc, which will probably arrive in Islamabad on Monday evening.
According to the latest dispatches, Tehran has still not decided whether to send its representatives to Pakistan. Cited by Qatar TV’s E. Azizmi (chairman of the Iranian Parliament’s security committee), he assessed that “perhaps today or tomorrow, after further assessment of the situation, we will deem the talks (note: author) possible, provided that the U.S. negotiating team and the signals it sends to Iran are positive.”
This statement came after the U.S. forces seized an Iranian ship.
The impact of rising oil prices will already be visible in producer prices
The Brent barrel opened on Friday at 98 USD, falling to about 86 USD during the climax of positive news. The close of last week’s trading on this type of oil was around 92 USD/b.
The first Monday quotes during the Asian session hovered near 96‑97 USD/b, reflecting the return of tension in the Gulf. The market will mainly try to anticipate the chance of a return to peace talks and an extension of the ceasefire.
The prospect of the Iranian delegation arriving in Islamabad would give hope to maintain a diplomatic path to resolve the current conflict and suggest that the events of the past hours mainly serve to assert their negotiating position, not a return to a kinetic phase of conflict. The next week in the shadow of Middle Eastern events will remain macro data.
Our attention will mainly be drawn to domestic readings. On Tuesday we will learn, among other things, March wage dynamics in the corporate sector. Our forecast is slightly above consensus (6.6% y/y, median of the “Parkiet” survey 6.3% y/y). The impact of rising oil prices and earlier price pressure on some industrial metals will likely already be visible in producer prices (our forecast 0.9% y/y, previous -2.3% y/y).
For construction‑assembly production we expect positive dynamics (1.5% y/y, consensus -1.8% y/y) after low readings at the start of the year caused by weather conditions. Tomorrow will also bring retail sales dynamics from the U.S. for the last month.
It will show how consumers reacted to the commodity shock and whether they actually limited purchases of other goods following sharp fuel price increases. Thursday will bring retail sales data for March and a series of preliminary PMI readings from the euro zone for the manufacturing sector.
In the case of this second publication, it is difficult to expect positive information. In addition to components related to the business cycle, the market will also try to assess how the commodity shock currently translates into price components (production factors and finished goods) in European PMIs.
Debt dampens Friday’s appreciation
The end of last week brought a clear strengthening of the UST. This was linked to announcements of the opening of the Strait of Hormuz by Iran (details in the first paragraph). The yield of the U.S. Treasury curve fell temporarily to 4.23% (opening 4.31%). At the climax, German 10‑year yields fell by 10 bp to 2.95%. In both cases, the close was relatively close to daily minima.
Ultimately, the U.S. curve shifted in the daily view at the main nodes by -7, -6 and -5 bp to 3.71% (2Y), 4.26% (10Y) and 4.88% (30Y). For the Bund, the yield change was -12, -10 and -5 bp at the main nodes to 2.39% (2Y), 2.96% (10Y) and 3.54% (30Y). Today’s 10Y UST open was about 4.28%. The Bund curve also reacts negatively to Gulf news.
It moves about +4 bp, testing the 3.00% level. We assess that uncertainty in the broad market will persist. Volatility will mainly be generated by reports on hypothetical talks in Islamabad. If they are confirmed, one can expect the current upward wave of yields to be exhausted.
CEE FI appetite for appreciation
Friday trading showed that securities in the region readily use the improvement in sentiment. The yield of the long end of Czech bonds fell by just under 10 bp to 4.63%. Positive reactions to Middle Eastern news also came from domestic instruments.
The PLNIRS curve shifted down by 10‑12 bp and there was a clear narrowing of the ASW margin – by 3 bp to 90 bp on 10Y. Finally, the daily yield change was -14, -16 and -14 bp to 4.07% (2Y), 4.73% (5Y) and 5.36% (10Y).
We assess that the risk reversal caused by weekend events in the Middle East will exert pressure on domestic bonds.
In the base scenario we assume that the dampening will not exceed half of Friday’s strengthening. Hence we assume that the 10Y SPW yield will remain below 5.43% assuming no return to a military phase of the Middle Eastern conflict.
Debt reaction determines FX changes
Sudden drops in the short end of the Bund (above 10 bp) blocked the euro’s appreciation potential despite increased risk appetite. EURUSD, after reaching daily highs near 1.1850, ultimately closed the session at a tie (1.1770).
The euro simultaneously weakened against the franc and yen (about 0.3‑0.4%) and remained stable against the pound. We maintain our position that the base scenario for EURUSD is a stabilization of quotes.
Assuming no strong risk‑flight (return of intense armed actions in the Gulf), current pair quotes should hold at the start of the current week.
Strong reaction of regional currencies
The CEE FX reacted quite strongly to Friday’s de‑escalation of the Middle Eastern conflict. The forint appreciated to the euro by over 1%. Relatively much also gained the zloty against the euro, pushing EURPLN down by 0.4% to 4.2250.
EURCZK fell by 0.2%. Monday’s open brings a dampening of about half of the movement from the end of last week and shifts the euro’s valuation to 4.2350 PLN. In the base scenario we assume that the next hours will not bring further changes to the zloty. Excluding a sharp reversal of risk flight caused by a strong rise in Gulf tension (return to a hot conflict phase), EURPLN will likely remain in the 4.23‑4.24 range.
