LONDON, April 2(Reuters) – It’s disappointment once again for financial markets after U.S. President Donald Trump dashed hopes for a swift end to the Iran war.
In addition to elevated headline risk, there’s plenty coming up on the docket for traders scrambling to price how much strain the global economy will face as they come to grips with the sharpest oil supply shock in history.
Here’s all you need to know about the coming week in financial markets by Rae Wee in Singapore, Lewis Krauskopf in New York and Dhara Ranasinghe, Ahmad Ghaddar and Marc Jones in London.
1/ CRYSTAL BALL ANYONE?
Ask any trader, investment strategist or economist how the U.S.-Israeli war with Iran plays out and the reply is broadly the same: It’s anyone’s guess.
Lesson learned. Traders who kicked off April betting an end to the war was in sight were wrong-footed as Trump vowed more aggressive strikes on Iran.
Equity prices tumbled and yields on battered bonds are rising again in response, demonstrating the uncertainty markets face at the start of the second quarter. Analysts say global stocks remain vulnerable to a deeper correction.
Even if hopes revive for a resolution to the conflict, damage inflicted on Middle East energy infrastructure and high energy prices will still hurt economies.
Indeed, after a brutal March, the narrative in bond markets is shifting slowly from inflation angst to growth fears.
Oil, of course, remains the key barometer.
2/ WHAT TO DO?
OPEC+ ministers meet on Sunday, but the scale of disruptions they have faced and resulting output cuts by Gulf countries means they have little room for manoeuvre.
Oil prices, which posted a record 60% jump in March, resumed their surge on Thursday, nearing $110.
The eight members – Saudi Arabia, Russia, Iraq, Oman, Algeria, Kazakhstan, Kuwait and the UAE – had been gradually raising output before the conflict erupted a month ago.
The International Energy Agency estimates the war has already removed about 12 million barrels per day of oil production, about 12% of global consumption.
Saudi Arabia and the UAE have rerouted some flows to ports away from the Strait of Hormuz, but Iraq and Kuwait are struggling with export constraints.
3/ PRICE CHECKS
U.S. inflation data on Friday of next week is the next key gauge for investors trying to judge how much the Iran war is pushing up prices and pinching consumers.
Consumer prices likely jumped 0.9% on a monthly basis, according to a Reuters poll, the most since 2022. The core number, stripping out food and energy costs, is seen rising by a much more modest 0.3%.
Spiking oil prices this week pushed the U.S. national average retail price of gasoline above $4 a gallon for the first time in more than three years.
That won’t go unnoticed in Washington in a key election year. It’s also tricky for a Federal Reserve juggling risks to the labour market. The war has wiped out trader bets on a rate cut this year.
The Fed’s favoured inflation gauge, the personal consumption expenditures price index, is also due next week, although it’s for February.
4/ FEELING THE HEAT
The hit from higher oil prices is global, but it’s magnified in Asia – which sources 60% of its crude from the Middle East – and businesses of every kind are feeling the pain.
Inflation readings across the Philippines, Thailand, Taiwan and China will offer an indication of just how much strain these economies face.
Adding to headwinds, Asian currencies have come under heavy selling pressure against a resurgent dollar this month, essentially making imports more expensive and squeezing households.
However, investors are betting China’s economy will be largely insulated from the oil shock, thanks to its ample crude stockpiles, dominance in green energy and subdued consumer price pressures.
5/ WALKING A TIGHTROPE
Another major Asian oil importer, India also bears watching.
The Reserve Bank of India is tipped to keep its main repo rate at 5.25% on Wednesday. But it’s in a tough spot as economists cut their growth forecasts at a time when surging energy prices will soon start showing up in inflation numbers given the rupee’s recent record lows.
If the Middle East conflict begins to abate, the policy rate is unlikely to budge for the rest of the year.
But the pace of the rupee slide has clearly worried the RBI, which has already thrown billions of dollars of reserves at the problem in the past few weeks and taken a number of increasingly unorthodox steps to try and halt the tumble.
Also on Wednesday, rate setters will meet in New Zealand.
Markets see little chance of a hike, but the central bank chief has warned a prolonged energy shock could warrant policy tightening down the line.
(Graphics by Kripa Jayaram; Compiled by Yoruk Bahceli; Editing by Kevin Buckland)
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