Key Highlights

• Vietnam, Thailand and the Philippines tap into fuel funds amid growing shortages.
• G7 expresses “in-principle support” for use of strategic energy reserves.
• EUR rate futures shift pricing as ECB’s Peter Kazimir warns hike may come sooner than planned.

Chart of the Day

Synchronized selloff in EM sovereign debt

^{Source: BNY}

We have been documenting some of the assets most exposed to the current conflict, but in light of elevated risk aversion – notwithstanding some suggestions of a gradual cessation of hostilities – there are signs of a broadening in scope for asset liquidation. The most obvious asset class at present is EM fixed income. Our latest data refresh shows that, barring a handful of names in Latin America, almost every single emerging market fixed income market is now being net sold. U.S. Treasurys are clearly benefiting, with some residual flows into the likes of Bunds and other higher-quality G10 assets. This represents a clear reversal of the supposed “U.S. diversification” trade at the beginning of the year, during which there was a clear preference for EM duration.

The situation remains volatile as the conflict approaches two weeks. On current evidence, however, this could prove one of the most challenging periods for EM fixed income, as the nature of the supply shock means there are very few places for shelter. There are major differences in fundamentals between regions, but flows over the past week were clearly a story of general liquidation, as direction and magnitudes converged.

For all three EM regions, selling last week was the strongest YTD on a weekly smoothed basis, and there is not a clear link between prior flow trends and what materialized last week. For example, EM APAC sovereign bonds had generally been struggling this year meaning that prior positioning or flow momentum was not as strong compared with high-yielding regions; nevertheless, sales flow magnitudes matched the other two regions, where the case for greater liquidation was clearly stronger.

What's Changed?

Sentiment across markets is mixed, as investors try to balance ongoing war and oil supply disruptions against IEA plans for coordinated strategic petroleum releases. The recovery in tech shares after Oracle earnings beat expectations must be balanced against JPM marking down private credit loans and limiting new lending. The comments by ECB President Christine Lagarde suggest rate hike risks, while in the U.S. the nomination of Kevin Warsh as FOMC Chair and his dovish bias are at the forefront. The noise from headlines on geopolitics will continue to balance against economic data, with the U.S. CPI announcement key today.

• Iran and oil updates: The U.K. navy has reported that three ships were attacked in the Strait of Hormuz. Nevertheless, some oil has been going through the strait since the start of the war; China has seen 11.7 million barrels delivered from Iran. Plans to release oil from global strategic petroleum reserves continue, with discussions in Japan, South Korea and the U.S. There was also confirmation of India buying Russian oil today. All of that has left oil prices up 4% on the day, as any release of oil will still require delivery and processing and time. The estimates are that 10 million barrels/day of oil flow from the GCC has been halted. That means 120 million barrels of shortfall thus far; if the war lasts five weeks or more, then the planned 400 million barrels of SPR releases will barely cover the shortage.
• Oracle up on AI revenue forecasts. The company has raised its outlook for FY revenues to $90bn (exceeding the $86.6bn consensus). Oracle’s revenue rose 22% to $17.2bn in latest quarter, beating expectations of $16.9bn. The company plans to raise $45-50bn to expand cloud infrastructure. AI growth in China saw pushback on the use of OpenClaw. The curbs suggest that while Beijing hopes to promote an “AI plus” action plan that aims to create innovation-driven growth by embedding the technology throughout the economy, it is also wary of cyber and data security risks, amid intensifying geopolitical tensions.
• Australia and inflation. AUD touched highs set in May 2022, as expectations of a 25bp RBA hike in next week’s (March 17) meeting moved from 30% to 75%. 60bp of tightening is now priced in for 2026. The RBA’s governor and deputy have both sounded a hawkish note on rates. Raising rates in the face of oil price shocks risks demand destruction. The key question for FX is whether AUD has already priced in the rate move.

Bottom line: Escalation is the worry. The U.S. session faces another day of geopolitical headline watching, and not just about Iran. So far, news of covert Russian actions to influence the Hungarian election and the Kremlin’s claims that U.K. Storm Shadow missiles were used to hit Bryansk’s electronics manufacturing in Russia have widened EU and U.K. involvement with another conflict. The point is that war, AI and credit remain the key blocks to further risk-on moves ahead of the U.S. CPI release and the ongoing supply of debt issuance. The markets are watching oil and gold as usual, but throwing in BDC credit spreads, AI equity baskets and USD for ballast, as the balance of moods faces new forces of doubt. 

What You Need to Know

G7 energy ministers have said that in principle they support the use of strategic reserves to address oil supply disruptions and market volatility following the outbreak of the war in Iran. After holding a virtual meeting with the International Energy Agency on Tuesday, the ministers stated they are closely monitoring energy market trends and coordinating within the G7, with IEA member countries and with other international partners. They welcomed the IEA governing board meeting as a key opportunity to assess supply security and market conditions. The group emphasized readiness to implement proactive measures, including potential releases from strategic reserves, to stabilize markets if required. Brent +2.165% to 89.7, WTI +2.433% to 85.48.

ECB Governing Council member Peter Kazimir has warned that the Iran war has heightened upside risks to inflation and could force the bank to raise interest rates sooner than anticipated, though he said there is no need to act at next week’s meeting. He argued that rising energy costs, persistent services inflation and widening profit margins risk accelerating cost pass-through and wage demands, shifting the balance of risks clearly to the upside. Kazimir stated that further rate cuts are off the table and stressed that policymakers can move without waiting for new projections, adding that the ECB is better prepared than in 2022. He also cautioned governments against broad energy support measures given the fiscal constraints. Although not as explicitly, Bundesbank chair Joachim Nagel has also warned that the ECB “will react” if the conflict pushes up inflation. Euro Stoxx 50 -0.877% to 5786, EUR.USD +0.018% to 1.1613, BBG AGG Euro Government High Grade EUR -7.1bp to 3.039%.

India has purchased 30 million barrels of Russian crude after the U.S. granted a temporary waiver allowing cargoes loaded before March 5, as the closure of the Strait of Hormuz is disrupting flows that normally carry around 20% of global oil and gas. Indian Oil bought roughly 10 million barrels and Reliance at least as much, paying premiums of $2-8 per barrel of Brent instead of previous discounts. With imports from Saudi Arabia and Iraq constrained, India has invoked the Essential Commodities Act to prioritize gas allocation, cut refinery gas use to 65% of recent averages and secure LNG supplies, as Qatar halted output and peak summer power demand may exceed 270GW. SENSEX -1.299% to 77190.03, USDINR +0.186% to 91.975, 10y INGB -0.7bp to 6.667%.

Thailand’s Energy Minister Auttapol Rerkpiboon said the state-run oil fuel fund is losing more than THB 1bn per day subsidizing diesel. Accumulated losses are projected to reach THB 10bn by March 18, as the government widens efforts to curb fuel demand. He stated that authorities will reassess the fund’s position and global prices to determine the next steps, though subsidies will continue for now, noting that the fund previously carried debt of up to THB 120bn. The government has suspended most oil exports, increased biofuel blending and mandated remote work to reduce demand, while officials have urged calm amid fuel hoarding and that warned additional measures could be introduced if losses continue to mount. Elsewhere in Southeast Asia, Philippine public utility vehicle drivers will receive PHP 5,000 of fuel subsidy starting next week, and Vietnam’s government began disbursing money from its fuel price stabilization fund to soften retail price increases. SET +0.764% to 1416.5, USDTHB -0.143% to 31.66, 10y TGN +17.8bp to 2.035%.

What We're Watching

U.S. February CPI is forecast to rise to 0.3% m/m, 2.4% y/y from 0.2% m/m, 2.4% y/y in January. Core CPI is expected at 0.2% m/m, 2.5% y/y from 0.3%, 2.5% y/y in January.

Central bank speakers: Fed Vice Chair for Supervision Michelle Bowman speaks at the American Bankers Association Washington Summit on supervision and regulation.

U.S. Treasury sells $69bn in 17-week bills and $39bn in a 10y note reopening.

What iFlow is Showing Us

Mood: iFlow Mood turned negative for the first time since early November, as demand for core sovereign bonds outpaced equities.

FX: CNY and ZAR posted significant inflows, followed by USD, CAD, JPY and HKD. INR and TRY posted the most outflows, along with EUR, GBP, CLP and SGD.

FI: U.S. Treasurys and Australian and European government bonds saw good demand, against aggressive selling in EM EMEA and EM APAC government bonds led by Israel, Türkiye, South Africa, China and Indonesia.

Equities: EM APAC equities were significantly sold, led by South Korea and Taiwan, followed by selling in Colombia. Peruvian, Japanese, Czech and Thai equities saw the most buying. Within EM APAC, the information technology, communication services, health care, financials, consumer discretionary and industrials sectors were significantly sold.

Quotes of the Day

“Step with care and great tact. And remember life’s a great balancing act.” – Dr. Suess

“Any order is a balancing act of extreme precariousness.” – Walter Benjamin

Economic Details

Germany’s February consumer price index rose 1.9% y/y and 0.2% m/m, confirming the preliminary reading, with inflation easing from 2.1% y/y in January. The harmonized index increased by 2.0% y/y and 0.4% m/m. Energy prices were down 1.9% y/y, driven by a 3.5% fall in household energy, including lower gas (-4.4%) and electricity (-4.1%) prices, while fuels rose 0.3%. Food inflation slowed to 1.1% y/y from 2.1%, as sharp declines in fats and oils offset higher confectionery and meat prices. Core inflation, excluding food and energy, remained at 2.5% y/y. Services prices rose 3.2% y/y, notably transport and social services, while goods increased by 0.8% y/y. DAX -1.215% to 23677.49, EURUSD +0.018% to 1.1613, 10y Bund +4.8bp to 2.884%.

Spain’s retail trade index at constant prices rose 4.0% y/y and 0.1% m/m on a seasonally and calendar-adjusted basis in January. The y/y rate was 1.2 percentage points higher than December’s reading, while the m/m rise was 1.0 percentage point above the previous month. The unadjusted series grew 3.7% y/y. By channel, e-commerce sales rose 0.9% m/m. Excluding service stations, sales were up 0.1% m/m, with food increasing by 0.5% and other products rising 0.3%. Retail employment increased by 0.9% y/y, while the employment index fell 1.7% m/m to 106.4; large chains rose 3.7% y/y and small chains fell 2.3% y/y. Retail sales rose y/y across all autonomous communities. IBEX 35 -0.15% to 17437, EURUSD +0.018% to 1.1613, 10y Bono +5.5bp to 3.347%.

Spain’s January provisional business statistics showed the number of companies created increased 8.8% y/y to 11,623, while dissolved companies decreased by 0.3% y/y to 3,897. Subscribed capital for new companies rose 30.5% y/y to €659.4mn, with average capital up 19.9% to €56,734. Capital increases were recorded by 3,624 companies, down 1.0% y/y, while subscribed capital for these operations fell 7.9% y/y to €2.75bn. 88.5% of the dissolutions were voluntary. Real estate, financial and insurance activities accounted for 19.9% of companies created and registered the highest subscribed capital at €456.1mn.

Türkiye’s trade sales volume index increased by 7.6% y/y and 0.1% m/m in January. On a y/y basis, motor vehicles and motorcycles wholesale and retail trade and repair rose by 13.6%, wholesale trade by 1.5% and retail trade by 18.8% y/y. On a m/m basis, motor vehicles and motorcycles trade and repair advanced 3.4% m/m, wholesale trade declined by 1.6% m/m and retail trade rose 2.4% m/m. The index, based on 2021=100, reflects calendar-adjusted annual changes and seasonally and calendar-adjusted monthly movements. Retail sales volume recorded notably stronger annual growth compared with overall trade, while wholesale activity remained comparatively subdued in both y/y and m/m terms. BI 100 +0.095% to 13188.31, USDTRY +0.05% to 44.0835, 10y TGB +9bp to 31.56%.

South Korean exports in the first ten days of March rose 55.6% y/y, with daily average exports up 31.7% y/y. Imports increased by 21.7% y/y, resulting in a trade surplus of $2.098bn. February exports and import growth rates were 29.0% y/y and 7.5% y/y, respectively. Key export drivers included chip exports, which surged 175.9% y/y. Exports to major destinations also saw significant growth, with shipments to China rising 91.2% y/y and U.S.-bound exports up 69.9% y/y. South Korean bank lending to households posted a third successive monthly decline in February, falling to ₩1.172qn amid tighter lending regulations. Year-on-year growth for both total household lending and household mortgage lending eased to 2.5% y/y and 3.0% y/y from 2.8% and 3.4%, respectively, in January 2026. Corporate loans rose ₩9.6tn m/m to ₩1.379qn. The government is continuing to apply strict measures to stabilize the housing market, with President Lee Jae Myung emphasizing control over multiple home ownership. KOSPI +1.398% to 5609.95, USDKRW -0.435% to 1472.45, 10y KTB -12.3bp to 3.619%.

Japan’s February 2026 Producer Price Index (PPI) softened to -0.1% m/m, 2.0% y/y from 0.2% m/m, 2.3% y/y in January 2026. The decreases were mainly in the electric power, gas and water sectors. The Export Price Index (contract currency basis) rose 1.5% m/m, 5.9% y/y (vs. 2.1% m/m, 4.8% y/y in January) driven by electric and electronic products and metals. The Import Price Index (contract currency basis) climbed 0.9% m/m, 0.6% y/y (January: 1.4% m/m, 0% y/y), led by metals, petroleum and electronic products. Such price figures could be of limited relevance in the near term as global energy and other input prices continue to rise, which means that import price indices for countries like Japan face significant upward pressure in upcoming prints. Nikkei +1.432% to 55025.37, USDJPY -0.316% to 158.27, 10y JGB -0.8bp to 2.172%.