Central banks' straitjacket

03:31 |

Morning Bid U.S.

A Reuters Open Interest newsletter

What matters in U.S. and global markets today

By Mike Dolan, Editor-at-Large for Finance and Markets

As the Iran conflict enters its third week with no end in sight, oil prices continue to push above $100 per barrel for Brent.

Over the weekend, the U.S. attacked Kharg Island, Iran's main oil exporting hub, and President Donald Trump continued to maneuver with other countries to secure safe passage for ships through the blocked Strait of Hormuz.

Looking ahead, central banks will take center stage this week, with the U.S. Federal Reserve, European Central Bank, Reserve Bank of Australia, the Bank or England and others all holding policy meetings.

I'll get into that and more below.

And listen to today's episode of the Morning Bid podcast, where I discuss how central bankers are likely to weigh oil's latest gyrations. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

Japan and Australia said on Monday they were not planning to send navy vessels to escort ships through the Strait of Hormuz, after U.S. President Donald Trump called on allies to create a coalition to reopen the vital waterway.
Italian bank UniCredit said on Monday it was launching an offer to own more than ‌30% of Commerzbank, crossing the mandatory takeover threshold existing under German law.
Meta is planning sweeping layoffs that could affect 20% or more of the company, sources told Reuters, as ‌Meta seeks to offset costly AI infrastructure bets.
Major importers of refined fuels potentially face an emergency situation of lower supplies and massively higher prices, writes ROI Asia Commodities and Energy Columnist Clyde Russell.
The U.S. is rapidly running out of shock absorbers to cushion the oil market from the loss of Middle Eastern crude supplies, raising the risk of a deeper global economic slowdown if demand destruction accelerates, argues ROI Energy Columnist Ron Bousso.

Central banks' straitjacket

Once again, all eyes are on the Strait of Hormuz. Over the weekend India managed to get safe passage through the narrow waterway for two of its tankers, while U.S. President Donald Trump pressured NATO allies - as well as China - to offer naval support to help convoys.

But progress on that front is mixed. Several countries called upon by Trump said, as of Monday, that they had no plans to send vessels to the Middle East to assist with this plan, even as the Trump administration is reportedly set to announce - as early as this week - that several countries have agreed to form such a coalition.

Meanwhile, Asian trading was mixed on Monday as Japan's Nikkei edged down 0.3% and South Korea's KOSPI added over 1% after last week's selloffs. Elsewhere, Europe's STOXX 600 opened lower while U.S. futures were up before the bell.

The dollar, which jumped over 1% against a basket of major currencies over the past week, softened slightly on Monday, while gold is holding steady.

Clearly, the big fixture of the coming week looks set to be the slew of central bank meetings, which are being held just as the economic impacts of the war with Iran are being weighed.

The Fed isn't expected to shift rates on Wednesday, but investors will be listening closely for warnings about the inflation risks from a prolonged oil spike as well as concerns about the softening labor market.

Core inflation rose to 3.1% in February, according to personal consumption expenditures (PCE) data released on Friday, even as U.S. GDP growth was revised down to just 0.7% in the fourth quarter. While both sets of figures precede the Iran crisis, they underline the twin risks from an oil shock of higher inflation and slower growth.

A second Fed cut this year has disappeared from the futures strip, and the one still fully priced in isn't expected until December.

Australia may be the only central bank to change rates this week, possibly hiking for the second time this year. The rest are in wait and see mode.

In China, retail and industrial numbers for the January-February period came in above forecast on Monday, tallying with its boom in trade for those two months. But these figures also precede the oil spike.

Staying with Beijing, attention will turn early this week to U.S.-China trade talks in Paris, which entered their second and final day on Monday. The talks, led on the U.S. side by Treasury Secretary Scott Bessent, come ahead of the U.S. state visit to China slated for later this month.

That also looks set to be overshadowed by the Iran crisis, however, as Trump indicated the visit could be delayed if China did not cooperate on helping to break the Hormuz blockage.

Finally, returning to the theme of AI job destruction, Meta is reportedly planning to lay off up to 20% of its staff, three sources familiar with the matter told Reuters.

Today's key chart

Graphics are produced by Reuters.

Dubai authorities said they brought a fire under control on Monday after the city's international airport was hit again by a drone that forced a suspension of flights. Global air travel remains severely disrupted after the war in Iran forced the closure of key Middle Eastern hubs including Dubai, Doha and Abu Dhabi, stranding tens of thousands of passengers.

Today's events to watch

U.S. February industrial production (9:15 AM EDT)
Canada February CPI (8:30 AM EDT)
Second day of U.S.-China trade talks in Paris

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