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Good morning, guys. Let’s quickly review the current situation. Today we leave the Iran issue to the end because there are more important issues to discuss at the moment.
First, the Purchasing Managers Index (PMI) data released yesterday gives us a very complicated picture. In the UK and the US we saw surprisingly strong data – both manufacturing and services, and even the composite index was higher than expected and previous data. This brings positive signals to the local economy.
On the other hand, the situation in the EU is negative. A month ago, the index was in the growth zone at 50.7 and has now fallen by about two points – a clear decline in economic activity, especially due to weakness in the services sector.
The situation in the euro zone has become complicated: on the one hand, the economy is slowing down, and on the other hand, expectations that the European Central Bank may raise interest rates in June are growing.
Recent statements suggest rates are likely to remain unchanged in April, but a rate hike later is highly likely. The reasons are well known – inflation risks, geopolitical tensions, supply issues and rising oil prices. The ECB has made it clear that it is trying to avoid a repeat of the mistakes of 2022, so it may take proactive action.
This puts the euro under pressure from two fronts: weak economic data and expectations of monetary tightening. Therefore, we may see significant volatility in the coming days as the market is still absorbing all of these factors.
But at the same time, if markets do start pricing in rate hikes, that could support the euro later. Well-known rule: the higher the interest rate, the more attractive the currency.
So, in the medium term, we are likely to see a stronger euro, but in the short term, it is better to wait and monitor the market’s reaction before taking a position.
Now we come to the Strait of Hormuz. I read an important analysis yesterday explaining why reaching a deal with Iran is so difficult right now.
The main problem is that there is no real unity in the decision-making centers within Iran. Although official positions are announced, they are not always implemented in practice because forces such as the Revolutionary Guards are very influential and operate relatively independently.
The situation is further complicated by the health of senior leadership, who according to some reports is no longer directly managing matters. This created internal divisions, with each party taking its own direction.
This is an important question: Who are you actually negotiating with? Even if an agreement is reached, there is no guarantee it will be implemented.
The report also pointed out that a large number of influential figures have been lost in recent times, exacerbating the instability of the situation.
For example, Ali Larijani was once one of the figures who was able to balance all parties, but he has now faded from the scene.
Under these circumstances, it is difficult to imagine what a stable, clear agreement would look like.
At the same time, the continuation of this double lockdown has also put strong pressure on the market. The price of oil in the futures contract exceeded US$105 per barrel, and some trading prices in the spot market reached US$130-140 per barrel.
This means that tensions are escalating and every day that a solution is delayed will cause huge losses to the global economy. Currently, Europe is the worst affected, but the impact will extend to other countries.
We must monitor the situation closely.
Today, we go to work normally. What is even more exciting in the US retail sales data is that it will significantly change the market.
We will see you at the conference and good luck to everyone 👍