Ahead Today
G3: US Chicago Fed Index, Eurozone Consumer Confidence
Asia: Singapore CPI Inflation
Market Highlights
Global rates markets and in particular on Friday the US market continued to reprice meaningfully towards rate hikes, while markets seemed unsure how to price for increasing threats by both President Trump and Iran on the path forward. In particular, we note that the Fed Funds Futures market has all but priced out rate cuts all the way until July 2027, while in places such as Europe and Australia markets are pricing for close to 3 rate hikes which is a dramatic reversal from no hikes before the Iran conflict. In this broader context markets vacillated as Asia markets opened to the tune of US President Donald Trump giving Iran a two-day deadline to reopen the Strait of Hormuz or have its power plants bombed. Trump said that Iran must “fully open, without threat”, the vital water way for energy flows, and gave Iran 48 hours “from this exact point in time” in a Truth Social post sent on Saturday 744pm New York time. Overall, Iran said in response that it would close the Strait of Hormuz “completely” and that it will target “all energy, information technology, and desalination infrastructure belonging to the US and Israeli regime in the region”.
Overall, the muted reaction by markets as Asia opened seems way too sanguine, for a crisis which is already acutely affecting Asia economies, and if this drags on further will likely result in energy shortages across our region. While most people focus on the headline oil price figure of US$110/bbl for Brent, people buy products not crude, and the epicenter of this shockwave apart from the Middle East really is in Asia. Singapore Jet fuel has already surged above US$200/bbl, gasoline and diesel have also similarly risen significantly, and in time to come as Asian refiners find their crude oil feedstock dwindling, they will have no choice but to bid for barrels across the world including the US. Arguably this is already happening, and sooner or later the sharp spike in fuel prices and more importantly resultant energy and fuel shortages will most certainly go global.