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Dollar on course for second consecutive weekly increase; Euro, yen are at multi-month-lows
The?U.S. The?U.S. dollar is on track for a second weekly gain as investors flock to safe-haven assets due to the conflict in the Middle East. A sharp rise in oil prices that is prolonged and severe would have a devastating effect on the economies of Japan and the Eurozone, both heavily dependent on crude imports. The United States, however, would be relatively protected, as it has been a net exporter of crude for nearly a decade. The economists are still wary about monetary tightening, as the countries' heavy dependence on energy imports will likely lead to a rise in energy prices that could impact on economic growth. The euro dropped to its weakest level since August and Japan warned it would take action if the yen fell further, as its value reached its lowest point in 20 months. The U.S. allowed the sale of certain Russian petroleum products, which had been banned due to Moscow’s “hostilities” in Ukraine. Iran intensified its attacks on oil and transportation facilities in the Middle East after Ayatollah Khamenei, the new Supreme Leader of Iran, pledged to close the Strait of Hormuz. The market is responding less to these?statements, which sound like an attempt to lower oil prices again. Volkmar Baur said this in reference to recent remarks from the U.S. government about a possible quick end to the conflict. On both sides of Atlantic, markets increased bets that monetary tightening would occur on the expectation that rising oil prices will stoke inflation. Brent futures were up on Friday as the U.S. tried to calm supply concerns. The U.S. issued a license to countries for a period of 30 days to purchase Russian oil and petroleum product stranded in the sea. The International Energy Agency agreed to release 400 million barrels of crude oil, a record amount. Some analysts have argued, however, that the emergency measures taken to alleviate oil supply disruptions could be sending a negative message to the markets. They may indicate that world leaders do not see much room for a quick de-escalation. The dollar index (which measures the greenback in relation to a basket of currencies) has reached its highest level since November 28. This is partly due to the safe-haven appeal but also because America is a net exporter of energy. The index rose by 0.51%, to 100.22. It was expected to gain 1.4% this week. EURO AT A 7-1/2-MONTH-LOW The euro fell to its lowest level in August, $1.1438. This is a 0.62% drop. Investors are awaiting the European Central Bank's policy meeting on Thursday. Meanwhile, traders are betting that the surge in oil prices will push the central banks to raise rates this year. Economists say that a prolonged closing of the Strait of Hormuz is needed to justify ECB monetary loosening in order to combat inflation. Citi, however, argued that the possibility of a few "insurance" increases could not be excluded, and that the central bank may open the door next week. Citi's main argument is that the ECB should not act because of uncertainty. The US dollar rose to 0.7894, its highest level since January. YEN IN INTERVENTION Territory The yen fell to 159.69 dollars, its lowest level since July 2024. Satsuki Katayama, Japan's Finance Minister, said that Japan was ready to take action against yen movements that affect people's daily lives. She also stated that she is in constant contact with U.S. authorities regarding foreign exchange issues. The U.S. carried out so-called rate check, which often precedes intervention. This helped drive a rally for Japan's currency. Analysts say that the recent unwillingness of officials to promote the yen could push it as low as 165 per dollar. Chris Turner, head forex strategy at ING and a proponent of Japan's intervention, said: "The third option, a fully joint intervention with U.S. Federal Reserve, might be more lasting, as it taps into the idea that Washington is prepared to combat the recent dollar strength." He added that "the problem for the authorities in Tokyo, Washington and London is that until energy prices are reversed, the dollar/yen won't be able to fall sustainably." The Australian dollar fell 0.70% against the greenback, to $0.7027. (Reporting from Stefano Rebaudo, Milan; Rocky Swift, Tokyo; Editing and Lincoln Feast by Pooja Deai and Lincoln Feast)
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Japan considers whether to purchase Russian crude oil following US sanctions waiver
An official from the?industry?ministry said that Japan would consider buying Russian crude oil after the U.S. granted a 30-day waiver of?sanctions amid the Iran War, taking into account international conditions and its own?national interest. The U.S. waiver permits countries to purchase sanctioned Russian crude oil and petroleum products that are currently stranded on the sea. Treasury Secretary Scott Bessent described this as a move to stabilize the global energy market, which has been?roiled by Iran's war. Narumi hosokawa, the deputy general-director of the Ministry of Economy, Trade and Industry's (METI) immediate crisis management, said, "We will examine the issue in the light of various international circumstances and Japan’s national interests." Another METI official stated that Russian crude oil is essential for a stable energy supply. However, Tokyo must continue to take "appropriate" measures while balancing broader international coordination and the discussions of the 'Group of Seven' with its own national interests. In 2025, Japan will import 94% of crude oil from the Middle East, and 93% of those shipments will pass through the Strait of Hormuz which is controlled by Iran. The U.S. and Israeli war against Iran has virtually blocked the flow of oil through?the Strait. Officials said that Tokyo will release 80 million barrels from its strategic reserves - equivalent to 45 days' supply - to mitigate global disruptions caused by the Middle East conflict. The government requested that domestic refiners use crude oil released from strategic reserves to ensure domestic petroleum supplies. The government's request does not limit the export of excess products generated during the refining processes. Ryosei Acazawa, Japan's industry minister, said earlier Friday that the country's refiners were seeking alternative crude oil supplies from other regions like Central Asia, South America and the U.S. (Reporting and editing by Thomas Derpinghaus; Yuka Obayashi)
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ASIA GOLD-Indian gold discounts reach near-decade-high; Mideast tensions boost China demand
The gold discounts in India reached their deepest level in nearly a decade this week as the demand remained'subdued' and some traders avoided paying import duties. Meanwhile, escalating Middle East conflict boosted demand for safe havens in China. "A few importers to India are declaring gold as platinum studded jewellery at customs, even though it contains over 90% gold. A Mumbai-based gold dealer said that they are able sell the duty-free gold at a steep discount. Imports of gold are subject to a 6% duty. However, imports of platinum-studded jewellery can be made duty-free. This week, Indian gold dealers offered a discount on the price of a gram of silver. The price of gold is now up to $83 an ounce, including 6% import duties and 3% sales taxes. This is the highest rate since July 2016. Last week they offered a discount up to $28. Jewellers are not buying as retail demand is very weak, and they are busy closing accounts for the year," said a Mumbai dealer at a private bank that imports gold. In China, the world's largest consumer of gold, prices were higher by $20 to $30 per ounce than global benchmark prices This week, the premium is significantly higher than last week's $13 to $15. "No new import quotas were issued in March so far, restricting the inflows... Bernard Sin, Regional Director of Greater China for MKS PAMP, said that the PBOC has a dual strategy - steady reserves accumulation and tight quota controls - to keep the domestic market resilient 'yet constrained. China's central banks?extended its gold buying spree to a 16th consecutive monthly. Peter Fung is the head of trading at Wing Fung Precious Metals. He said, "Physical Demand (for Gold in China) remains very high because of the conflict in Middle East. People still want to buy gold as a haven of safety." Physical gold is available in Hong Kong In Japan, the premium is $3. Gold was sold with a $1 premium. In Singapore Gold was traded with premiums ranging from $0.50 to $ 2, compared to the $2.25 premium last week.
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Europe's debt-burdened Europe is less prepared to absorb energy shocks
Energy prices are rising due to the U.S./Israeli war against Iran. This is putting pressure on European governments to provide assistance for households and businesses. However, their financial resources in some major economies have been stretched. It is unlikely that they will provide the same level of support as was provided three years ago after Russia invaded Ukraine, when subsidies and other aid amounted to hundreds of billions of euros. In response to the 2022 energy shortage that will exacerbate cost of living concerns and angered voters, governments have begun to release record amounts of oil. France, Greece, and Poland have all introduced restrictions on profit margins, and reduced prices for oil - these measures are cost-effective and beneficial to the public purse. Germany is also interested in regulating pump prices. They may still need to do more. Frank Gill, S&P Global Ratings EMEA's lead analyst, said: "If gas prices rise and there is an interruption of more than a few weeks in Qatar's gas deliveries, you can expect governments to step in and introduce some subsidies." The governments don't know yet where the energy prices are going to land. It's evident that they are cautious when it comes to fiscal measures. The British government said that it was too soon to freeze fuel duties, and the French government resisted calls from opposition parties to reduce value-added taxes (VATs) on petrol. Italy may use VAT revenues generated by higher fuel prices to fund "a reduction in fuel excise duties". Gill says that in comparison to 2022, the COVID-19 Pandemic and energy crisis have led to a budget deficit that is nearly 3 percentage points greater than that of 2019. Interest rates are higher and the economic growth is lower than it was four years ago. Meanwhile, European governments have already increased their defence spending. Germany is increasing borrowing to fund a massive stimulus program. OIL PRICES NEAR PEAKS IN 2022 - BUT NOT FOR GAS While oil prices have been flirting with $120 per barrel this week and are nearing their peak of 2022, the energy situation in Europe is different from 2022. Gas prices have risen by over 50% since the start of the war, but are still only one-sixth the level they were at in 2022. Europe hasn't replaced Russia as it did in the past. Federico Barriga Salazar, Fitch's Western European ratings head, said last week that if prices continue to rise and governments are forced to offer support, this could increase fiscal pressures on France and Britain, given their large budget deficits. S&P warned that Hungary's investment grade rating is at risk in Central Europe due to the generous support measures already in place before an April election. Barriga-Salazar says that while Spain, Portugal, and Greece are in a better financial position, higher spending could undermine their recovery. Scope Ratings has warned about Italy's fiscal reputation. While it has done a lot to repair its reputation, a slowing of the economy could make it more difficult for Italy to leave the European Union budgetary discipline measures. TARGETED MEASURES Barclays economists say that, given the limited space to act, governments will have to 'limit and target more this time, as they did in 2022. Britain and Germany are already echoing that message. Morgan Stanley estimated that the energy support measures taken by euro zone governments in 2022-2023 amounted to 3.6% of their output, even though EU rules on deficits were suspended because of the pandemic. Morgan Stanley estimates that they can only support around 0.3% of the output per year by adhering to EU rules. Morgan Stanley stated that if the Strait of Hormuz remains closed for more than a month, and there are signs of weakened growth, the EU could allow certain countries to temporarily deviate from the rules. Morgan Stanley expected these countries to spend up to 0,6% of their annual output to fund targeted actions. Morgan Stanley said that it would be a very severe economic downturn before the EU suspended its rules once again. The higher costs of debt are a constraint in themselves. Gregoire Pesques is the chief investment officer for fixed incomes at Amundi, Europe's largest asset manager. In recent years, bond investors have become more aware of fiscal slippages in Europe. Britain and France are at the front line. Pesques stated that Germany and Spain with their low debt and high growth have more room for response. The government's ability to offset the costs of support measures is key in determining the affordability of such measures. Windfall taxes on energy firms is one strategy that many European countries implemented last time, and Italy has already indicated. S&P's Gill pointed out that revenues were far below the cost of subsidies last time. Subsidies and price caps, say critics, would increase energy demand and push prices upward. Georg Zachmann is a senior fellow with the think tank Bruegel. He said: "In the short-term, it's best to enable and encourage reductions in the demand."
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MORNING BID - EUROPE - Crude shock
Ankur Banerjee gives us a look at what the future holds for European and global markets The selloff of stocks and bonds has increased as markets prepare for a war in the Middle East which could keep oil prices at $100 per barrel. Traders are scrambling to determine the risks associated with stagflation. Investors are bracing themselves for increased volatility as leaders from Iran, Israel, and the United States show their defiance. They have put on their risk-off caps and bought U.S. dollar. The global interest rate outlook has been completely transformed by the fading hopes for a quick resolution. The Federal Reserve has not cut rates this year as much as they did at the end February. On Thursday, the money markets had fully priced in a rate increase for?the European Central Bank by July, with a 70% probability of a second hike by December. In February, traders had a 40% chance of a rate reduction before the end of the year. Markets will pay close attention to a number of central bank meetings that are scheduled for next week, as they get the chance to hear from policymakers about their opinions on inflation, interest rates, and growth. The benchmark yields for the Euro Area Bunds reached their highest level since almost two and a half years, while U.S. Treasury yields on 2-years have hit a 6-month high. Since the start of the war, the U.S. Dollar has gained over 2% compared to six major rivals. Asian investors began their day with some good news. The U.S. announced a 30-day waiver allowing countries to purchase sanctioned Russian crude oil and petroleum products that are currently stranded on the sea. On the news, oil prices eased and stocks recovered some of their losses. While Treasury Secretary Scott Bessent said the move was to stabilize the global energy markets the relatively muted response underscored real inflation fears and the poor investor sentiment around the world. U.S. stock futures and European stock prices point to a higher opening, but it remains to be determined if this momentum will continue. The following are key developments that may influence the markets on Friday. * UK GDP CPI France The Eurozone Industrial and Manufacturing Data
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Oil prices rise despite US sanctions on Russian oil
The oil prices are on the rise this week, despite U.S. efforts to reduce supply concerns. Brent futures rose by 10 cents or 0.1% to $100.56 per barrel at 0400 GMT. This is expected to lead to a weekly gain of about 9%. U.S. West Texas Intermediate crude (WTI), for April, was down 16 cents or 0.2%, at $95.57 per barrel. However, it is also expected to rise 7% for the week. Analysts said that the license issued by Treasury Secretary Scott Bessent was not enough to solve wider supply constraints. "ICE Brent Futures have already broken $100 per barrel, and they are still supported, despite the moves to calm markets, with the Russian oil 'waiver' and the unprecedented release emergency stockpiles," Emril Jamil said, senior analyst at LSEG. The market views this as a temporary solution, which does not deal with the "crux" of the disruption in supply. The crude intermonth spreads in future months show a continued and unresolved tightness of?supply," Jamil stated. Jamil stated that Brent is supported more than WTI because Europe is more vulnerable to energy security concerns, whereas the U.S. can stave off their exposure due to domestic production. Analyst Yang An at Haitong Futures said that the issue of the license will not resolve the fundamental problem. "The most important thing for the Strait of Hormuz is to restore navigation." The announcement about Russian oil comes a day after U.S. Energy Department announced that the U.S. will release 172 millions barrels of oil to curb the skyrocketing price of oil. This plan was coordinated in conjunction with the International Energy Agency (IEA), which agreed to release a record-breaking 400 million barrels from strategic oil stockpiles. The U.S. also contributed. In a note, IG analyst Tony Sycamore stated that the'resurgence of Middle East risks' shattered any temporary relief triggered by IEA. The benchmark prices for both products rose by more than 9% Thursday, reaching their highest levels since August 20,22. Mojtaba Khmenei, Iran's supreme leader, said that Iran will continue to fight and keep the Strait of Hormuz closed as leverage against Israel and the United States. Iraqi security officials reported that two fuel tanks in Iraqi waters had been struck by Iranian boats laden with explosives, on Thursday. Iraqi officials told state media that oil ports in the country have stopped operating. Scott Bessent, U.S. Treasury secretary, told Sky News that the U.S. Navy would, possibly with an international alliance, escort ships through the Strait of Hormuz if it was militarily feasible. (Reporting from Jeslyn Li in Singapore, Sam Li in Beijing and Lewis Jackson; editing by Tom Hogue).
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As supply concerns increase, iron ore prices rise.
The price of iron ore futures rose for the third session in a row on Friday, as expanded restrictions on cargoes by mining giant BHP caused concerns about supply. These were further exacerbated by expectations that?hot metal production would increase in?China. As of 0318 GMT, the most-traded?contract? for May iron ore on China's Dalian Commodity Exchange climbed by 3.22% to 818.7 yuan (118.87 dollars) per metric ton. Earlier in the session, the contract reached a high of 827 Yuan for two months. The benchmark iron ore for April on the Singapore Exchange rose 0.7% to $108.6 per ton. Both contracts have gained 6.5% this week. China has increased its ban on BHP iron ore a second time in just two weeks. This is a result of a contract dispute that has been ongoing for months with the world's third largest supplier of this key ingredient. Three sources familiar with the matter said that China Mineral Resources Group, the state-run buyer of iron ore, told domestic steel mills and 'traders' on Thursday they were prohibited from taking delivery of Newman Fines, a popular BHP ore stored in ports. Beijing has gradually tightened restrictions for local steel mills, traders and buyers of BHP iron ore in the last six months while it negotiates terms for BHP's supply contract 2026. Last week, traders were instructed to buy fewer Newman lumps, Newman fines and Mac fines. However, the directive also allowed them to purchase the grades of iron ore that are already in port storage. The ban this week restricts the buying to?stocks of?BHP Newman lumps or Mac fines that are already stored in ports. After the lifting of production cuts last week, it is expected that demand for feedstock will increase. The inspections and maintenance of the key Chinese steelmaking hub Hebei have also been completed, and warmer weather has encouraged construction. Coking coal and coke, both of which are used in steelmaking, grew by 2.84% and 1.65%, respectively. The benchmarks for steel on the Shanghai Futures Exchange have increased. Rebar increased by 0.7%, while hot-rolled coils gained 0.85%. Wire rod also firmed up 0.18%, and stainless steel hardened 0.422%. ($1 = 6.8855 Yuan) (Reporting and editing by Ronojoy Mazumdar).
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Trump believes Iran's supreme leader, the new supreme leader, is still alive but damaged
Donald Trump said that the new Iranian Supreme leader Mojtaba Khmenei is still alive, but "damaged." His father, the previous supreme ruler, was killed in the U.S.-Israel war against Iran on the very first day. Khamenei has not been seen in Iran since he was selected on Sunday by the clerical council. His first remarks were read by a television presenter on a Thursday. A senior Iranian official said on Wednesday the newly-appointed supreme leader was only lightly injured, but continued to work. State television had described him as a war-wounded man. "I think (he is) probably alive." In an interview with Fox News' "The Brian Kilmeade show," Trump stated, "I think he has been damaged, but I believe he is probably alive, in some form." Fox News published his remarks late Thursday. Khamenei made his first remarks in which he vowed that the Strait of Hormuz would remain closed and urged neighboring countries to shut down?U.S. Bases on their territory are at risk of being targeted by Iran. On February 28, the U.S., Israel and other countries began attacking Iran. Iran responded by launching its own attacks on Israel and Gulf states with U.S. base. As the war neared a two-week mark and thousands of people had been killed, the leaders of Iran and Israel, as well as the United States, all expressed defiance and vowed to continue fighting.
CEE ECONOMY - Romanian inflation eases more quickly than expected, but the outlook for rate cuts is clouded by war
Inflation in Romania was lower than expected for the month of February, but the uncertainty surrounding the economic impact of the conflict in the Middle East clouded the outlook on interest rate reductions.
The policymakers have been unable to reduce interest rates due to a spike in inflation that has occurred after the electricity prices increased and the coalition government raised taxes in August last year in order lower the largest deficit in the European Union.
Analysts were divided on whether or not the bank would cut rates until after the impact of higher taxes and electricity prices had faded. After the start of the Middle East war, analysts polled earlier this month expect the first bank cut to be in the second half.
Data from the National Statistics Board shows that consumer prices increased 9.31% over the past 12 months, down from the 9.62% of the previous month, and below analyst expectations of 9,4%.
Prices increased by 0.59% in the last month.
The central bank raised its inflation forecast in February to 3.9%, slightly higher than originally expected.
Governor Mugur Isarescu played down expectations of a rate reduction before there were clear signs that the inflation was "strongly declining".
The government has decided to cap the gas prices for households until April 2027. This is a positive step for inflation.
The government announced on Thursday that it would partially offset the diesel prices for transporters. Finance Minister Alexandru?Nazare also said he expects "a moderate rise?in inflation."
The government aims to have a deficit of 6.2% in 2026, down from 7.7% last year and more than 9% in the previous year. Parliament is expected approve the budget before end-March. (Reporting and editing by Toby Chopra; Luiza Ilie)
(source: Reuters)