Banking on oil relief

A Reuters Open Interest newsletter

Banking on oil relief

By Jamie McGeever, Markets Columnist 

Wall Street notched solid gains on Monday led by tech, while the dollar and bond yields fell, as volatile oil prices eventually settled lower on the bet - perhaps more in hope than expectation - that the supply crunch from the Middle East could soon ease. 

More on that below. In my column today I look at the historic week in monetary policy now underway, the first week since 2021 that the 'G4' central banks are meeting, and only the second ever. The global rate repricing since war broke out in the Middle East has been aggressive. Too aggressive?

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Trump calls on "allies"

Several traditional U.S. allies have said they have no plans to assist the U.S. in trying to re-open the Strait of Hormuz, which would get oil tankers moving again and help lower the price of oil. A number of countries including Germany, Italy and Spain, have rebuffed President Trump's call for help.

German Chancellor Merz said there is no mandate from the UN, EU or NATO, adding that Washington didn't consult Germany before launching the war. Earlier this year, Trump alienated European and NATO allies by threatening to take Greenland. Relations are strained, and cooperation will require a lot more negotiation.

* Dollar and global rate reprice

The dollar had its biggest fall in over a month on Monday, dragged down by sliding Treasury yields and U.S. rates traders moving back to fully pricing in a Fed rate cut by year end. Its losses against the Aussie and kiwi dollars were particularly large.

Don't be surprised, however, if these dynamics quickly reverse and FX volatility stays elevated this week, as the Fed and seven other G10 central banks meet. First up is the RBA on Tuesday. Even if none or just the RBA changes rates, that's a lot of guidance and signaling for markets to digest.

* U.S.-China ties under spotlight

U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng have led 'candid and constructive' talks in Paris, laying out possible 'deliverables' for Presidents Donald Trump and Xi Jinping at their summit in Beijing scheduled for March 31 - April 2. 

Whether that summit takes place as planned is now in doubt, after Bessent and the White House said it might be postponed if Trump needs to stay in Washington to prosecute the war on Iran. The summit is two weeks away. It could be a very long two weeks.  

This is a historic week in the world of monetary policymaking. The "G4" central banks meet in the same week for the first time since December 2021, and only the second time ever, with investors clamoring for evidence of whether the Middle East oil shock could make policymakers start thinking about rate hikes. 

None of these central banks – the Federal Reserve, European Central Bank, Bank of England and Bank of Japan – are expected to raise interest rates this week. But if the tone from the accompanying official statements and press conferences reflects the hawkish moves in rate futures markets, the question may soon become when, not if, the tightening will begin.  

At the same time, the current energy crisis could also result in heavy hits to household spending, consumer and business confidence, and hiring. If growth slows sharply, the temptation to cut rates will be strong.

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