March is the cruellest month

While the WSJ report indicates that Trump is looking for an immediate offramp, those pessimistic about the duration of the war may focus more on the Iranian attack on an oil tanker in the Gulf that took place early Tuesday - as well as further reports of U.S. troops arriving in the region, this time 2,500 Marines.

Crude prices were choppy on Tuesday morning, ebbing slightly before climbing again to leave Brent hovering around $115 per barrel and U.S. crude around $104.

Stocks were mixed, meantime, with Wall Street futures in the green before the bell. And while European shares edged up on de-escalation hopes, the pan-European STOXX 600 still remains on track for its sharpest monthly fall since 2020.

Elsewhere, Asian trading had another painful session as major indexes closed lower - with South Korea's KOSPI suffering its steepest monthly fall since 2008.

U.S. Treasury yields eased on Monday, though they remain on track for a steep monthly rise, with eurozone bond yields dipping as well. Fed Chair Jerome Powell helped the recovery in Treasuries yesterday when he noted that long-term inflation expectations remained "well anchored" - though he otherwise said the Fed would "wait and see" how the war ultimately impacts inflation.

But as the IMF pointed out on Monday, "all roads lead to higher inflation and slower growth". In that vein, eurozone inflation leapt to 2.5% in March from 1.9% previously, while on Monday fresh German inflation data showed a jump to 2.8% from 2.0%.

Elsewhere, China business surveys showed some resilience this month, with factory activity growing at the fastest pace in a year, mirroring readings elsewhere.

Stateside, a big labor market week - culminating in the March jobs report on Good Friday - will kick off today with the release of February's job openings data. And traders will also get a read on how U.S. consumers are weathering the energy shock so far with the release of the Conference Board's latest consumer confidence index.

With that, onto today's column.

Everyone has an opinion on what central banks should do with rates as the Iran war drives an energy shock. The answer, for now, may be nothing.

Most monetary authorities have so far only talked tough, warning of "decisive" action if needed. But a sharp tightening of overall financial conditions has already hit anyway, thanks to higher energy prices, rising borrowing rates, mortgage rates, wider credit premiums and falling stock prices.

The Chicago Federal Reserve's index of U.S. national financial conditions tightened in March by its most in any single ‌month since U.S. President Donald Trump's sweeping tariff announcement last April - sending the gauge to its most restrictive since last May.

Graphics are produced by Reuters.

Graphics are produced by Reuters.

Much like March manufacturing readings from Europe and America, China's factory activity grew at the fastest pace in a year this month, an official survey showed on Tuesday.

Whether this was a spurt in activity before the full impact of March's oil price shock or simply despite it given China's large energy stockpiles. The reboot after Lunar New Year holidays in February may have been a factor.

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