Key Highlights

• Iranian state television says the country has not yet sent a delegation to Pakistan for peace talks.
• Japan announces removal of most restrictions on overseas arms sales.
• Kevin Warsh is expected to defend Fed independence ahead of today’s Senate hearing.

Chart of the Day

South Korean and Taiwanese equity holdings only just starting to recover

^{Source: BNY}

As risk-driven flows continue, equity markets remain the asset class where a risk recovery is the most apparent on a level basis. However, our holdings data indicate that there is still quite some distance to go before full mean reversion. This is the case for both emerging and developed market equities, but on a relative basis developed markets are recovering more strongly.

Emerging markets fell from 26% above the one-year rolling average to around 10% above, before recovering to 14% last week. This indicates that three-quarters of the holdings losses are yet to be recouped. For developed markets, by contrast, the starting point was softer as U.S. equities had undergone a difficult period before the conflict, and about a third of the losses have been recovered. The recovery itself also started early for developed markets, which points to better earnings resilience thanks to secular themes.

Taiwan and South Korea were among the most-affected equity markets globally: they were faced with a difficult combination of a high beta to the global AI theme and severe adverse exposure to energy supply difficulties. Both were extremely overheld heading into the conflict, and the impact was clear: South Korean equities dropped almost 40 percentage points (of the rolling 12-month average) from peak to trough and have only recovered a small fraction of the losses. This represents a key source of financial conditions tightening as new BoK Governor Shi Shin Hyun-song takes the reins. Taiwan’s drop was smaller, but the recovery is similarly negligible. Out of all the risk barometers, we believe a holdings recovery in these two markets would be the clearest sign of a global return to normality in risk sentiment.

What's Changed?

Risk sentiment is holding up despite the mixed signals about talks in Pakistan. Whether the conflict continues, escalates or sees some memorandum of understanding for a truce will be important today, as it has been since March. Markets expect a more binary outcome: either an ongoing ceasefire or a sharper escalation in the conflict. Clearly, the latter is not the preferred option, or the one where money flows have gone. Oil is down 1.75%, with WTI back below $90/barrel; equities are up in APAC and Europe, albeit modestly; and bonds are slightly bid. USD is up 0.15% but remains range-bound, with a focus on INR and GBP weakness against NZD and IDR gains. The binary outcome may be the hope more than the reality of the day ahead.

To talk or not to talk? The mixed signals about Iran joining talks in Islamabad is the key for today. The on-and-off exercise has left most expecting an extension of the current situation. The other factor for markets to keep in mind is that the deadline for the U.S. is Wednesday evening. Speaking to Reuters, an Iranian official said Tehran was “positively reviewing” its participation in ​the talks but stressed that no decision had been made.

Shaky confidence: The drop in U.S. consumer confidence will be tested by today’s retail sales data. Gasoline costs are expected to inflate the number, but once they are stripped out that leaves little room for other sales. In Germany, the ZEW survey was clear about the conflict hitting confidence. “Businesses are concerned about long-term shortages of energy supply,” the ZEW reported, adding, “This discourages investment.”

Warsh hearings: The Senate confirmation hearings on Kevin Warsh’s nomination as chairman of the Federal Reserve will be an event to watch as investors await more news from Pakistan. Key elements in today’s messaging will be about Fed independence and the bias toward easing rates even with inflation data pointing higher. Looking through the global energy shock will be difficult to explain.

Bottom line: The short vs. medium vs. long-term risk horizon separates how investors will react to headlines today. U.S. retail sales will need to be looked through, given the energy inflation caused by the war. The Warsh hearings will be another, with the size and role of the Fed likely the more important anchor for the nomination. Headlines about peace talks will be the noisemaker driving volatility, as has been the case since March. The key risk lies in non-binary outcomes: where clarity isn’t delivered and where risk correlations fray with stocks and bonds moving in different directions, where earnings reports highlight micro over macro factors and where USD isn’t the on-off switch for trading risk across commodities.

What You Need to Know

Kevin Warsh has emphasized that Federal Reserve independence in setting interest rates is “essential” in remarks prepared for his Senate testimony, while signaling that policymakers must remain guided by rigorous analysis and resist political pressure despite President Trump’s calls for lower rates. He argued that the Fed should avoid “mission creep” into fiscal or social policy areas and maintain credibility by focusing on its core mandate, while accepting that elected officials may express views on broader policy issues. His comments come as he seeks confirmation to replace Jerome Powell, amid heightened tensions between the White House and the Fed, including legal disputes and concerns over political interference. These cast uncertainty over the nomination and underscore the stakes for future U.S. monetary policy direction. S&P Mini +0.14% to 7158, DXY +0.153% to 98.247, 10y UST +0.9bp to 4.26%.

The latest reports from various sources are mixed on the prospect that U.S.-Iranian talks in Pakistan could go ahead. Iran has denied that a delegation has been sent, while a U.S. official has signaled expectations of negotiations. Oil prices fell on the shift in sentiment, with Brent down 0.6% to $94.94 and WTI sliding 1.2% to $88.50, having previously gained around 6% on uncertainty. A Pakistani source said talks could begin Wednesday as the ceasefire approaches its expiry, while nearly 20,000 security personnel have been deployed in Islamabad. Despite this, tensions remain elevated following the U.S. interception of an Iranian vessel and continued disagreements over sanctions, nuclear limits and regional security. Brent -0.66% to 94.85, WTI -1.619% to 88.16, Omani crude +4.474% to 97.85, Dubai crude +1.203% to 101.654, HH natural gas -1.079% to 2.66, Dutch TTF natural gas -2.041% to 39.47.

Japan’s April Financial System Report (FSR) has highlighted that the country’s financial system remains broadly stable. It says financial intermediation is functioning smoothly as loan demand continues to rise and banks maintain an active lending stance, with no major financial imbalances currently evident. Banks hold sufficient capital and stable funding bases to withstand severe stress scenarios, including conditions comparable to the global financial crisis and a compound shock involving geopolitical risks, higher oil prices, weaker AI-related expectations and rising interest rates. However, risks require close monitoring, particularly from geopolitical developments in the Middle East, policy changes across jurisdictions and vulnerabilities in the non-bank financial sector. Over the longer term, structural factors such as declining loan demand linked to population trends could weaken bank profitability and potentially lead to either reduced intermediation or excessive risk-taking. Nikkei +0.89% to 59349, USDJPY +0.221% to 159.16, 10y JGB +0.3bp to 2.397%.

Japan has announced its largest reform of defense export rules in decades, removing most restrictions on overseas arms sales. The changes will allow exports of warships, missiles and other weapons, marking a shift from its postwar pacifist policy. This move aims to strengthen Japan’s defense industrial base amid global military supply strains, linked in particular to the conflicts in Ukraine and the Middle East. Potential early exports include used warships to the Philippines. Japan will maintain strict screening and bans on sales to conflict-involved countries but may allow exceptions for national security. The government is planning further defense spending increases beyond the current 2% of GDP.

The new BoK governor Shin Hyun-song has signaled a cautious and flexible monetary policy stance at the start of his term. He cited heightened uncertainty emanating from the Middle East crisis, with rising oil prices adding to upward pressure on inflation while weighing on growth and increasing financial market volatility. The BoK earlier held its benchmark rate at 2.5%, in a seventh consecutive hold despite being in an easing cycle, with Shin describing policy as requiring “strategic patience” given unclear inflation and growth paths. He also highlighted structural risks including demographics, household debt and real estate, alongside plans to reassess policy tools and strengthen monitoring, while noting broader global shifts driven by geopolitical tensions and AI. KOSPI +2.72% to 6388, USDKRW -0.011% to 1472.35, 10y KTB -3bp to 3.685%.

What We're Watching

U.S. ADP weekly employment change is forecast to moderate to 25k from 39.25k.

U.S. April Philadelphia Fed non-manufacturing activity is expected at -25 vs. -23.9.

U.S. March advance retail sales is forecast to rise to 1.4% m/m vs. 0.6% m/m, with retail sales ex auto expected to rise to 1.4% m/m vs. 0.5% m/m but the ex auto and gas measure expected to ease to 0.2% m/m vs. 0.4% m/m.

U.S. February business inventories forecast to rise to 0.3% m/m vs. -0.10% m/m.

U.S. March pending home sales are expected at 0% m/m vs. 1.80% m/m in February.

South African Reserve Bank’s biannual monetary policy review.

U.S. Treasury sells $70bn in 6-week bills.

What iFlow is Showing Us

Mood: iFlow Mood advanced further into risk-on territory at 0.258, driven by accelerated equity demand, nearing its mid-February 2026 highs.

FX: In the G10, USD and DKK saw outflows against broad inflows elsewhere, led by NZD and AUD. Elsewhere, flows were mixed, with notable outflows in PLN, MXN and IDR, versus inflows in CLP, HUF and INR.

FI: Strong demand across the G10 and EMEA, led by Eurozone, Turkish, Hungarian and Canadian government bonds. LatAm and APAC flows were skewed toward selling, particularly in Chile, the Philippines and Indonesia, while Chinese government bonds saw buying.

Equities: Robust global demand, with only light outflows in Canada, Czechia, South Korea and the Philippines. Significant inflows were seen in Australia, Norway, Sweden, Brazil, Mexico, Chile, Hungary, Türkiye, China and Taiwan. In EM, industrials, consumer staples, financials, IT and utilities all recorded strong inflows.

Quotes of the Day

“Resilience is a process rather than a single event – a continuum rather than a binary outcome.” – Meetu Khosla

“Most decisions are not binary, and there are usually better answers waiting to be found...” – Jamie Dimon

Economic Details

Germany’s ZEW index indicated a sharp deterioration in investor sentiment in April. The current conditions index fell to -73.7 from -62.9 in March, while the expectations figure was far below consensus at -17.2 vs. -5.8. The corresponding European survey was also very weak at -20.4 vs. -8.5 previously. The figures underscore the sharp turnaround in sentiment due to the conflict, especially as energy costs continue to spiral; even the prospect of a ceasefire and talks established during the past few weeks have not helped turn sentiment around. The ZEW warned that businesses are concerned about the long-term shortages in energy supply, which is discouraging investment, while the economic consequences of the war go far beyond inflation. This raises the notion that blunt instruments such as rate increases may not be an appropriate response in the current environment. DAX +0.54% to 24550, EURUSD -0.246% to 1.1759, 10y Bund -0.7bp to 2.973%.

France’s retail sales volume increased by 0.4% m/m in March, rallying from a 0.5% fall in February. This was driven primarily by a recovery in manufactured goods sales (+0.7% from -1.6%), while food sales remained flat. Within manufactured goods, strong gains were seen in bicycles and motorcycles (+7.2%) and pharmaceuticals (+3.9%), alongside a rebound in sporting goods, while declines were recorded in toys and books. By distribution channel, sales continued to fall in hypermarkets but recovered in supermarkets, department stores and small retailers, indicating a shift in consumption patterns. Over the three months to March, retail sales rose by 0.5% compared with the previous period, with growth driven by food (+1.8%) while manufactured goods declined (-0.5%). Overall, the data suggest modest consumption resilience, though with uneven performances across sectors and continued structural divergence across retail segments. CAC 40 -0.08% to 8325, EURUSD -0.246% to 1.1759, 10y OAT -0.9bp to 3.603%.

Spain’s services sector output increased by 0.7% y/y in February on a seasonally and calendar-adjusted basis, slightly easing from the previous month, while the m/m reading was flat at 0.0%. In non-adjusted terms, annual growth was 0.5%, indicating modest underlying expansion in the sector. By component, activity in “other services” showed stronger growth, rising by 1.4% y/y, while commerce recorded a more subdued increase of 0.3%. Overall, the data point to a stabilization in services activity, with limited short-term momentum given stalling m/m growth and modest y/y gains, suggesting a relatively soft pace of expansion in Spain’s services sector at the start of the year. IBEX 35 +0.35% to 18237, EURUSD -0.246% to 1.1759, 10y Bono -1.1bp to 3.411%.

Spain’s trade balance for February showed a contraction in both exports and imports. Exports shrank by 0.8% y/y to €31.7bn and imports fell 1.1% to €35.0bn, resulting in a trade deficit of €3.3bn. Over the first two months of the year, exports decreased by 1.8% while imports dropped by 4.8%, narrowing the cumulative deficit to €7.3bn. The decline was largely driven by sharp falls in energy trade, with energy exports and imports contracting significantly, while non-energy trade showed relative resilience. By sector, capital goods provided positive support to exports, whereas chemicals and energy weighed on performance. Overall, the data indicate subdued external demand conditions, with weak trade flows but some improvement in the trade balance thanks to softer import dynamics.

U.K. average earnings growth for December-February was 3.6% y/y for regular pay and 3.8% y/y for total pay. In real terms, CPIH-adjusted growth was 0.2% y/y for regular earnings and 0.4% y/y for total earnings, while CPI-adjusted measures showed higher increases of 0.4% y/y and 0.7% y/y, respectively. Sector-level data indicated public sector regular pay growth of 5.2% y/y, compared with 3.2% y/y in the private sector; earlier pay timing effects from 2025 continued to influence comparisons but are now fading. Outside of the public sector, the strongest regular earnings growth over the period was recorded in the wholesaling, retailing, hotels and restaurants sector. FTSE 100 +0.17% to 10627, GBPUSD -0.348% to 1.3488, 10y gilt +3.1bp to 4.865%.

U.K. payrolled employment fell 0.2% y/y in March to 30.3 million, equivalent to a decline of 65,000 employees. Meanwhile, m/m employment was broadly flat with a decrease of 11,000. Sector-level data showed the largest fall coming in wholesale and retail (-57,000) and the largest increase in health and social work (+41,000). February’s previously reported increase of 20,000 employees was revised to a decrease of 6,000 following additional real-time information submissions. Median monthly pay increased by 4.3% y/y in March, with the strongest growth in public administration and defense (+7.5%) and the weakest in professional, scientific and technical activities (+2.9%), based on provisional estimates subject to revision.

Swiss Q1 exports were down 4.2% q/q to CHF 66.9bn, while imports fell 4.7% q/q to CHF 55.8bn. That resulted in a trade surplus of CHF 11.1bn, representing a fifth consecutive contraction. The decline was driven by chemicals and pharmaceuticals, where exports dropped 8.1% q/q, the fourth consecutive fall; imports in the same category decreased by 10.8% q/q. Eight out of ten export sectors contracted, although watches (+2.1% q/q) and vehicles (+1.2% q/q) provided partial offsets. By region, exports to Europe rose 3.8% q/q, while there were falls of 14.4% q/q and 5.2% q/q in shipments bound for North America and Asia, respectively. Exports to the U.S. were down 15.6% q/q, taking them to their lowest level since Q4 2020. SMI -0.4% to 13231, EURCHF +0.016% to 0.91776, 10y Swiss GB -0.7bp to 0.399%.

Poland’s producer prices fell 0.8% y/y but rose 1.0% m/m in March, marking a second consecutive monthly rise but extending the period of annual price contraction. The m/m increase was driven mainly by higher prices in manufacturing and energy supply, while mining prices fell. Within manufacturing, refined petroleum products recorded the strongest gains, while some sectors such as clothing and pharmaceuticals saw declines. On a y/y basis, producer prices remained under downward pressure, particularly in energy and manufacturing, although modest increases were recorded in water supply and mining. Overall, the data suggest that while short-term price momentum has turned positive, underlying producer price dynamics remain weak, with disinflationary pressures still evident across the industrial sector. WIG -0.02% to 134040, EURPLN +0.038% to 4.2321, 10y PGB +0.4bp to 5.414%.

Polish employment and wage data for March 2026 showed a reduction in labor demand alongside strong wage growth. Average paid employment in the enterprise sector fell by 0.1% m/m and 0.9% y/y, while average gross wages rose by 5.7% m/m and 6.6% y/y. Employment stood at around 6.4 million full-time equivalents, indicating a continued softening in labor market conditions. In contrast, wage growth remained robust, supported by bonus payments, wage increases and the earlier rise in the statutory minimum wage. Overall, the data point to a divergence between weakening employment dynamics and resilient wage pressures, suggesting that labor cost growth remains elevated despite signs of cooling in hiring activity across the enterprise sector.

Poland’s industrial production increased by 9.4% y/y and by 17.2% m/m in March, with growth in the first quarter rising to 2.9% compared with the same period in 2025. Seasonally adjusted output also showed strong momentum, up 8.8% y/y and 7.0% m/m. The expansion was broad-based, with output rising in the majority of industrial divisions, particularly in energy (+18.3%), capital goods (+9.4%), non-durable consumer goods (+8.8%) and intermediate goods (+8.4%), while durable consumer goods declined slightly. Sector-level data indicate widespread gains across manufacturing industries, including machinery, transport equipment and food production, although falls were recorded in a small number of sectors such as tobacco and textiles. Overall, the data point to a strong rebound in industrial activity, supported by broad-based growth across sectors and improving short-term momentum.

Türkiye’s investment tendency statistics for spring 2026 show strengthening manufacturing sector investment, based on survey responses from 1,752 firms. Realized gross investment spending in 2025 increased by more than was anticipated in the autumn 2025 survey, with the overall balance rising to 11.3 from 7.6, although large firms (500+ employees) recorded a weaker-than-expected outcome. By component, gains were driven by machinery and equipment and intangible assets, while construction-related investment remained subdued. Looking ahead, planned investment for 2026 points to further improvement, with the overall balance increasing to 10.9 from 5.7, alongside upward revisions across all firm sizes but particularly among mid-sized firms. Overall, expectations indicate broad-based optimism, though continued weakness in construction-related investment suggests a preference for productivity-enhancing capital expenditure over fixed infrastructure expansion. BI 100 +0.65% to 14579, USDTRY +0.049% to 44.8947, 10y TGB +19bp to 31.93%.

Türkiye’s manufacturing capacity utilization rate remained broadly stable in April, with the seasonally adjusted rate unchanged at 74.0%, while the non-adjusted rate rose by 0.5 percentage points m/m to 73.8%. The data, based on responses from 1,752 firms, suggest a steady level of industrial activity despite modest monthly fluctuations. Utilization rates varied across sectors, with relatively high levels in tobacco, wood products and paper, while textiles and leather lagged. By goods classification, intermediate goods recorded a slight increase, while consumer goods – particularly non-durable segments – showed some softening vs. the previous month. Overall, the figures point to stable but not accelerating momentum in manufacturing, with capacity use hovering near recent averages and indicating limited cyclical pressure in the industrial sector.

Türkiye’s real sector confidence index softened in April, with the seasonally adjusted index falling by 1.4 points m/m to 98.6, signaling a slightly pessimistic outlook, while the non-adjusted index dropped 0.4 points to 100.6. The deterioration was mainly driven by weaker assessments of recent orders, general business conditions, export orders, production expectations and employment outlook, although fixed investment and current total orders provided some offset. Recent production trends improved modestly, but order books remained below seasonal norms and inventories increased. Forward-looking indicators point to mixed dynamics, with stronger expectations for domestic demand, employment and investment, but a softer export outlook. Cost pressures remain elevated, with firms expecting further increases in unit costs and selling prices, while annual producer price expectations rose to 31.9%, indicating persistent inflationary pressures in the pipeline.

New Zealand’s Consumer Price Index (CPI) rose 0.9% q/q and 3.1% y/y in Q1 vs. 0.6% q/q, 3.1% in Q4 2025. Key q/q price increases included petrol (+3.5%), pharmaceuticals (+17.7%) and confectionery (+6.2%), while international air transport (-7.0%) and prepaid overseas accommodation (-4.0%) declined. On a y/y basis, electricity (+12.5%), local authority rates (+8.8%) and meat and poultry (+8.6%) were main contributors to the 3.1% CPI rise. Tradeable inflation increased by 0.7% q/q, 2.5% y/y (Q4 25: 0.7% q/q, 2.6% y/y), led by meat and poultry (+11.8%) and cultural services (+17.8%). Non-tradeable inflation rose 1.1% q/q 3.5% y/y (Q4 25: 0.7% q/q, 3.5% y/y), driven by electricity (+12.5%) and local authority rates (+8.8%). NZX 50 +0.13% to 12932, NZDUSD +0.477% to 0.5908, 10y NZGB +2.6bp to 4.617%.

New Zealand’s NZIER Quarterly Survey of Business Opinion for Q1 showed a sharp decline in business confidence, with only a net 1% of firms expecting improved economic conditions, down from 39% in Q4 2025. The U.S.-Israeli war with Iran and resulting shipping restrictions in the Strait of Hormuz have disrupted supply chains and caused fuel prices to surge, increasing caution among firms. The building sector is most pessimistic in light of weaker demand and rising costs, while manufacturing and retail remain relatively optimistic. Cost pressures are persisting, but inflation risks are currently contained. The RBNZ is expected to start tightening monetary policy with a 25bp OCR hike in July.

South Korea’s exports in the first 20 days of April rose 49.4% y/y on both a working-day-adjusted and unadjusted basis. This marked an acceleration from 40.4% y/y in the equivalent period in March, while imports increased by 17.7% y/y, resulting in a trade surplus of $10.4bn. Export growth was driven by semiconductors (+182.5% y/y), computer peripherals (+399% y/y) and oil products (+48.4% y/y), although autos and auto parts recorded falls. By destination, there were y/y rises in shipments to China (+70.9%), the U.S. (+51.7%), the EU (+10.5%) and Taiwan (+77.1%). Rising oil prices linked to the Middle East tensions have driven up import costs, with import prices around 16% higher and export prices also rising over 16% m/m, adding to inflation pressures. KOSPI +2.72% to 6388, USDKRW +0.14% to 1470.45, 10y KTB -3bp to 3.685%.

Taiwanese exports, which are measured in USD, surged to a record $80.2bn in March, rising 61.8% y/y and 61.0% m/m, while imports reached $58.9bn, up 38.3% y/y, resulting in a trade surplus of $21.3bn. For the first quarter, exports increased by 51.1% and imports by 34.8% compared with the same period last year. The strong export performance was driven by robust demand for artificial intelligence, high-performance computing and cloud-related products, with significant gains in information and communication technology goods and electronic components. Imports were supported by increased demand for semiconductor equipment and intermediate inputs. Overall, the data point to exceptionally strong trade momentum, underpinned by global technology demand and Taiwan’s key role in semiconductor and electronics supply chains. TAIEX +1.75% to 37605, USDTWD -0.124% to 31.479, 10y TGB -1bp to 1.495%.