Key Highlights

• Risk sentiment improves cautiously as the U.S. proposes a plan to end the conflict.
• China’s state-owned shipping line resumes Middle Eastern bookings.
• Denmark’s Social Democrats suffer worst election result since 1903 but PM Mette Frederiksen may still lead a coalition government. 

Chart of the Day

ZAR leading high-yielder outflows ahead of SARB decision

^{Source: BNY}

Today’s SARB decision will be another test for high-yielding currencies, especially in EMEA. ZAR has already been the worst-performing high-yield currency in EM over the past week, and it remains among the best-held. TRY has been another early casualty of the conflict, and its outflow scores are also quite high. Despite having materially higher interest rates in Türkiye, there is a lack of a commodity output factor to compensate within balance of payments, unlike South Africa.

However, as the conflict drags on, it is becoming clear that non-energy commodity outputs are hardly being seen in positive terms either. In comparative terms, currencies with a very weak real rate outlook are facing even greater stress and holdings have shifted toward underheld. This is why the pressure will be on SARB to deliver a very hawkish response, as differentiation is essential in the current environment.

ZAR performed well at the outset of the conflict, but there were strong indications that inflows were the result of hedges being taken off, given that EMEA fixed income performed very poorly throughout the period. The past week or so has seen an acceleration in ZAR sales as some outright currency positions are being reversed. The market has radically shifted its view on SARB policy: a near-autopilot path toward its lower inflation target, even paving the way for stronger fiscal rules, has given way to aggressive tightening being priced in. SARB will need to deliver strongly on this front today lest further deterioration is seen, especially if the market is going to shift toward increased balance-of-payments stress.

What's Changed?

Equities are lower, oil higher, USD higher and bonds lower, as the optimism around an off-ramp to the war has proved to be a detour to month-end rebalancing and risk. Headlines continue to suggest that President Trump wants a deal but that the ongoing military operation will extend for another week, and indeed there is more planning for a final escalation. Markets are trading as if April will be the turning point for this conflict, whereas analysts and Polymarket are less sanguine, with June seen as the earliest date for a deal.

• South Korea and the WGBI: The country’s inclusion in the bond index will be a key structural catalyst, potentially attracting some $50bn in bond inflows. However, KRW weakness reflects external pressures and equity outflows; positioning remains overheld within EM Asia. The shift in focus for investors will be from equities to bonds in watching flows. Incoming BoK Governor Shin Hyun-song is viewed as relatively hawkish, but we still expect the bank to remain on hold. Rate hikes are unlikely to address KRW weakness – which is largely being driven by oil and USD – and would risk exacerbating household debt.
• Google and TurboQuant: Shares in the global chipmaker fell overnight, as the new Google technology can limit the memory needed to run LLMs by a factor of 6, shifting down costs and training times for AI. However, the Jevons Paradox suggests more efficient technology drives faster demand. At the same time, ARM Holdings has jumped into the AI market with its own chips, adding to concerns about the path to performance and returns.
• Real rates and the Fed: Efforts to reform the U.S. Fed are ongoing, and FT reports on U.S. Treasury Secretary Scott Bessent’s push to recast the relationship suggest the BoE will act as a template. Central bankers’ ability to respond to economic crises will be a key issue. Today is a case in point, as the Iran conflict shows up in consumer and business surveys: examples include the German GfK setting a two-year low and a fall in the French manufacturing climate. However, the ECB’s focus is on inflation, not growth. The contrast with the Fed’s dual mandates could provide a detour from real rate dominance.

Bottom line: Escalation fears abound, offset by hopes of talks. In between, volatility is intensifying across asset classes, with oil the ongoing risk barometer. Replacing exports from the Gulf states is proving hard, as the Russia/Ukraine war adds to the shock, with 40% of that oil export capacity halted. Elsewhere, measures of growth are sinking, with copper down 1% and other industrial metals weaker. Stagflation remains the key word for ongoing risk reductions, leaving today’s U.S. economic data as a sideshow unless new signposts are found for the exit ramp to replace the present detour. The FX markets have provided the only relative calm, with central bankers playing a key role in redirecting traffic – witness the BSP, Norges Bank and perhaps the SARB as we watch ZAR today.

What You Need to Know

Bundesbank President Joachim Nagel said in a Reuters interview that the ECB could raise rates as soon as April, describing a hike as “an option” if rising energy prices from the Middle East conflict increase inflation risks. He noted policymakers would have sufficient data by the April 29-30 meeting to decide whether to act or wait, adding that the ECB should not dismiss tightening prematurely. The surge in oil and gas prices, alongside disruptions linked to the Strait of Hormuz closure, is increasing upside risks to inflation in the energy-importing euro area. Nagel emphasized that the ECB will watch for spillovers into wages and broader prices, while markets are pricing two to three rate hikes by year-end, implying rates of around 2.50-2.75%. DAX -1.19% to 22685, EURUSD +0.009% to 1.156, 10y Bund +6.1bp to 3.019%

Norway’s March policy rate was kept unchanged at 4.0%, but Norges Bank signaled that a hike will likely be required at one of the forthcoming meetings as inflation remains above target and is now expected to be higher than previously projected. The central bank highlighted stronger-than-expected inflation and wage growth, alongside elevated energy prices linked to the Middle East conflict, as key upside risks. While a stronger krone may dampen imported inflation, policymakers judged that tighter policy will be needed to return inflation to target. The rate path has been revised up, with projections pointing to 4.25-4.50% by year-end, reinforcing expectations of near-term tightening. OSE -0.26% to 1975, EURNOK -0.21% to 11.1808, 10y NGB +6.1bp to 4.424%.

In a surprise off-cycle decision, BSP kept its policy rate unchanged at 4.25%, as the monetary board chose to balance rising inflation risks against weak growth conditions. Inflation in the Philippines is projected to exceed the 4.0% ceiling in 2026 before returning toward the target range in 2027, while expectations remain anchored. Upward pressure stems from higher global oil and fertilizer prices linked to the Middle East conflict, which are feeding into domestic fuel and transport costs. Policymakers assessed these risks as largely supply-driven, limiting the effectiveness of tighter policy, while warning that rate hikes could delay recovery amid subdued growth. The central bank signaled that it will remain vigilant to second-round effects and is ready to act if needed. PSEi -0.99% to 5984, USDPHP +0.228% to 60.245, 10y PHGB -7.1bp to 6.862%.

U.S. Treasury Secretary Scott Bessent has discussed reshaping the relationship between the Treasury and the Federal Reserve, drawing on elements of the Bank of England’s framework, in a move that could tighten oversight while preserving formal independence. He has privately praised the U.K.’s post-1997 model, particularly its approach to crisis interventions and clearer delineation between monetary and fiscal roles. The discussions come amid escalating political pressure on the Fed from President Trump, including public criticism of Chair Jay Powell and a Justice Department probe. The proposals, alongside views from potential successor Kevin Warsh, are expected to raise investor concerns about the future independence and governance of U.S. monetary policy. S&P Mini -0.59% to 6602, DXY +0.065% to 99.663, 10y UST +4bp to 4.372%.

What We're Watching

U.S. initial jobless claims are expected to rise to 210k vs. 205k the week prior.

U.S. March Kansas City Fed manufacturing activity forecast at 3 points from 5.

Central bank speakers: Fed Governor Lisa Cook speaks on financial stability, Fed Governor Stephen Miran speaks on the Fed’s balance sheet at the Economic Club of Miami.

U.S. Treasury sells $85bn in 4-week bills, $80bn in 8-week bills and $44bn in 7-year notes.

What iFlow is Showing Us

Mood: iFlow Mood has stabilized at -0.107, with renewed equity outflows alongside moderating demand for core sovereign bonds.

FX: Mixed and light flows within G10, with inflows into USD, JPY and AUD against outflows from EUR, GBP, CAD and NOK. In EM, strong buying was seen in CLP, HUF and PHP, while ILS, TRY, ZAR and SGD recorded significant outflows.

FI: Solid demand across G10 and LatAm sovereign bonds, led by the Eurozone, the U.K. and Mexico. Elsewhere, flows in EMEA and APAC were biased toward selling.

Equities: Broad-based equity outflows across both DM and EM. The largest-scale selling was observed in Switzerland, Sweden, Canada, India and South Korea, while Poland, Thailand and Singapore saw notable inflows.

Quotes of the Day

“Failure is a detour, not a dead-end street.” – Zig Ziglar

“Perhaps some detours aren’t detours at all. Perhaps they are actually the path.” – Katherine Wolf

Economic Details

Euro area M3 growth slowed to 3.0% y/y in February from 3.2%, while M1 growth slipped to 4.8% from 5.2%, signaling weaker monetary momentum. Household loan growth was unchanged at 3.0%, while lending to non-financial corporations edged up to 2.9% from 2.8%. Deposits from households grew 3.2%, while corporate deposits accelerated to 3.9%. On the counterparts side, contributions from private sector credit eased to 2.8 percentage points and net external assets to 2.1 percentage points, while claims on government fell to flat. Overall, monetary dynamics point to moderating liquidity conditions alongside steady but subdued credit growth across the euro area economy. It remains to be seen how the conflict will impact credit behavior. Euro Stoxx 50 -1.08% to 5589, EURUSD +0.009% to 1.156, BBG AGG Euro Government High Grade EUR +3.7bp to 3.347%.

Germany’s April consumer climate indicator fell by 3.2 points to -28.0, down from -24.8 in March, reflecting a deterioration in sentiment driven by geopolitical tensions and inflation concerns. Income expectations dropped sharply by 12.6 points to -6.3, while economic expectations declined by 11.2 points to -6.9, signaling a weakening outlook. In contrast, willingness to buy remained relatively stable at -10.9, and willingness to save held at a high level of 18.5. The report highlights rising energy prices and inflation fears linked to the Iran conflict as key drivers, with over 60% of consumers expecting persistently high energy costs, weighing on confidence and increasing uncertainty about future economic conditions. DAX -1.19% to 22685, EURUSD +0.009% to 1.156, 10y Bund +6.1bp to 3.019%.

France’s consumer confidence index fell to 89 points in March, down two points m/m and further below its long-term average, reflecting weaker expectations regarding personal finances and the broader economy. Households reported a sharp deterioration in expected living standards and a significant rise in inflation expectations, with the latter reaching its highest level since September 2022. Savings intentions remained strong and broadly stable, while views on major purchases remained subdued. Unemployment expectations were little changed but remained elevated, indicating persistent caution among households. CAC 40 -0.53% to 7805, EURUSD +0.009% to 1.156, 10y OAT +8.8bp to 3.741%.

France’s March business climate indicator was flat at 97 points, remaining below its long-term average of 100 for a 24th consecutive month, with weakness in wholesale trade and industry offsetting slight improvements in construction and retail. The wholesale trade indicator fell sharply to 95, while industry declined to 99, reflecting weaker production and order books. Services remained subdued at 96, particularly in business services, while construction edged up to 97 and retail improved to 99. The employment climate rose by one point to 94, supported by improved hiring expectations in services, though it remains well below average.

France’s retail and automotive trade business climate indicator for March rose to 99, up 1 point m/m and approaching its long-term average, driven by a rebound in order intentions. However, broader activity signals remained weak, with declines in past and expected sales and a sharp fall in general business outlook. Inventory levels fell for a third consecutive month to below average, while price expectations remained elevated and past price growth continued to rise. Employment expectations improved slightly, though past employment weakened, and economic uncertainty remained below its long-term average.

France’s services business climate indicator for March was unchanged at 96, with mixed underlying trends. It has remained below its long-term average since November 2024. Firms were less pessimistic about future demand and activity, but assessments of past activity and sector-wide outlook deteriorated further. Employment indicators remained weak despite a slight rebound in hiring expectations. Price pressures were again above average, while uncertainty remained stable. Conditions were particularly weak in business services and administrative support, while real estate and transport showed some improvement and accommodation services rallied modestly.

France’s industrial business climate indicator fell by three points to 99 in March, dropping below its long-term average on weaker production and declining order books, particularly in transport equipment. Both domestic and export order balances deteriorated, while past production continued to weaken. Price expectations rose to their highest level since January 2025. Supply constraints remained elevated, with 28% of firms reporting supply-side obstacles, while demand-related constraints eased to 23%. Employment expectations improved modestly despite weak overall activity conditions.

Italian consumer confidence fell sharply in March, to 92.6 from 97.4, while the business confidence edged down marginally to 97.3 from 97.4. The deterioration among consumers was broad-based, driven primarily by weaker views on the economic outlook, with the economic climate dropping to 88.1 from 99.1 and future expectations to 85.3 from 93.1, alongside falls in personal and current conditions. In contrast, business sentiment improved in manufacturing (88.8), construction (103.6) and services (102.7), but fell markedly in retail (100.6). Underlying data showed stronger orders in industry and services but weaker expectations, while retail conditions deteriorated across all components. FTSE MIB -0.81% to 43657, EURUSD +0.009% to 1.156, 10y BTP +10.1bp to 3.937%.

Spain’s Q4 GDP was up 0.8% q/q and 2.7% y/y, unchanged from the previous quarter, with domestic demand contributing 3.5 percentage points and external demand subtracting 0.8 percentage points. Household consumption rose by 0.9% q/q and 3.1% y/y, public consumption by 0.2% q/q and 2.5% y/y and investment by 1.9% q/q and 5.9% y/y. Exports increased by 0.8% q/q and 3.8% y/y, while imports rose 1.2% q/q and 6.5% y/y. On the supply side, construction expanded by 2.2% q/q and 7.2% y/y, services by 0.9% q/q and 3.0% y/y and industry by 0.3% q/q and 2.6% y/y. Employment rose by 2.8% y/y, hours worked by 2.2% y/y and full-year 2025 GDP by 2.8%. IBEX 35 -0.69% to 16971, EURUSD +0.009% to 1.156, 10y Bono +8bp to 3.545%.

The U.K.’s March BRC survey reported a sharp deterioration in consumer confidence, with expectations for the economy falling to -53 from -30 and personal finances to -17 from -6, both the weakest since the survey began in March 2024. The decline was linked to the Middle East conflict raising inflation concerns, particularly via higher energy costs. Despite weaker confidence, spending expectations increased, especially for food and groceries. The drop in sentiment was most pronounced among older households reliant on investments and pensions. The data, based on a survey of 2,000 adults, aligns with broader signals of pressure on consumers, including forecasts of rising inflation and reports of declining retail sales. FTSE 100 -0.88% to 10018, GBPUSD -0.075% to 1.3355, 10y gilt +7.3bp to 4.912%.

Sweden’s trade balance for February recorded a surplus of SEK 1.8bn, narrowing from SEK 12.1bn a year earlier, as exports fell 5% y/y while imports rose 1% y/y. Goods exports totaled SEK 163.8bn and imports SEK 162.0bn. Trade with non-EU countries produced a surplus of SEK 23.7bn, offset by a SEK 21.9bn deficit with the EU. On a seasonally adjusted basis, the surplus stood at SEK 0.9bn, down from SEK 2.5bn in January and SEK 3.8bn in December, indicating a moderation in external trade momentum despite stable working-day effects compared with the same month last year. OMX -1.58% to 2897, EURSEK +0.25% to 10.8379, 10y Swedish GB +5.7bp to 2.952%.

Swedish lending to non-financial corporations grew 3.8% y/y in February, accelerating from 2.9% in recent months and up sharply from 0.3% a year earlier, while the average interest rate on new corporate loans edged up to 3.43% from 3.40% in January. Household lending growth stood at 3.0% y/y, with housing loans at 2.9% and consumer loans at 3.1%. Total lending reached SEK 8.196tn, with households accounting for 63%. Household deposits rose to SEK 2.891tn, while money supply (M3) increased by 4.9% y/y. Mortgage rates averaged 2.66% for new agreements, while deposit rates for households declined to 0.46%, indicating shrinking returns on savings.

Sweden’s goods exports declined by 10% y/y in value terms and 1% y/y in volume terms in January, while imports fell 8% y/y by value but rose 1% y/y by volume, indicating a weak start to trade activity. On a m/m basis, exports decreased by 1% in both value and volume terms, while imports fell 2% by value and 1% by volume. Weakness was broad-based, with forest products exports down 16% y/y by value and 7% by volume, and chemical products down 10% by value despite a 10% rise in volume terms. Energy exports fell 5% by value but rose 16% by volume, highlighting price effects, while imports of energy goods dropped 18% by value but increased 13% by volume.

Norway’s unemployment rate was flat in February at 4.6%, unchanged vs. January, with the number of unemployed people holding steady at 139,000, indicating continued labor market stability. Trend data show that unemployment has remained around 4.5% since May 2025, while job growth remained positive in January, with employment rising by 11,300 (+0.4% m/m), before preliminary figures pointed to a decline of 10,500 jobs in February. The number of employees increased by 9,100 y/y (+0.3%), driven primarily by immigrant workers, particularly Ukrainians, while other resident employment declined. Youth unemployment had risen throughout 2024 but stabilized from August 2025, with figures for older age groups broadly unchanged. OSE -0.26% to 1975, EURNOK -0.21% to 11.1808, 10y NGB +6.1bp to 4.424%.

Japan’s Services Producer Price Index rose 2.7% y/y in February, accelerating from 2.6% y/y in January, while the index was up 0.2% m/m to 112.1. The index excluding international transportation also rose 2.7% y/y and 0.2% m/m to 111.8. Price pressures were driven by other services (+3.2% y/y), information and communications (+2.3% y/y) and transportation and postal activities (+2.6% y/y), with notable strength in hotels (+8.5% y/y), television advertising (+8.4% y/y) and ocean freight transportation (+9.7% y/y). Monthly y/y momentum improved by 0.1 percentage points, reflecting gains in advertising and transport services, partially offset by declines in leasing and logistics segments. Nikkei -0.27% to 53604, USDJPY 0% to 159.47, 10y JGB +2.1bp to 2.283%.

South Africa’s February PPI for final manufactured goods slowed to 1.8% y/y from 2.2%, while prices were flat m/m, indicating easing producer price pressures. The main positive contributions came from food, beverages and tobacco (+2.3%, contributing 0.7 percentage points) and furniture (+12.1%, 0.5 percentage points). Intermediate goods inflation decelerated to 7.8% y/y from 10.5%, with a 0.7% m/m decline, driven by chemicals. Electricity and water inflation eased to 15.4% y/y, while mining prices accelerated to 30.3% y/y with a 3.5% m/m increase. In contrast, agriculture prices remained in deflation at -5.1% y/y, reflecting ongoing weakness in primary sector price dynamics. JSE TOP 40 -2.05% to 104260, USDZAR +0.237% to 17.0156, 10y SAGB +5.5bp to 9.17%.

Singapore’s manufacturing output fell 0.1% y/y in February, slowing sharply from 12.9% y/y in January, while output was down 7.2% m/m on a seasonally adjusted basis. Excluding biomedical manufacturing, output rose 3.9% y/y but dropped 9.4% m/m. Electronics was the sole growth driver: it expanded by 13.7% y/y, supported by semiconductors (+14.6%) and other electronic components (+40.4%), which partly reflected AI-related demand. In contrast, biomedical manufacturing contracted by 27.3% y/y, while chemicals (-4.6%), precision engineering (-3.5%), general manufacturing (-5.7%) and transport engineering (-0.2%) all saw falls, largely due to Lunar New Year-related shutdowns. Cumulatively, total manufacturing output rose 6.9% in the first two months of the year. STI -0.19% to 4895, USDSGD +0.141% to 1.2833, 10y SGB -3.1bp to 2.199%.

Taiwan’s unemployment rate rose by 0.03 percentage points to 3.32% in February, while the seasonally adjusted rate edged down 0.03 percentage points to 3.33%, with the total unemployment count at 400,000. Employment fell by 5,000 m/m to 11.64 million but increased by 28,000 y/y, driven by services (+43,000 y/y), while agriculture and industry declined. The labor force participation rate slipped 0.02 percentage points m/m to 59.59% but rose 0.26 percentage points y/y. Labor underutilization indicators (LU1-LU4) increased slightly to 3.36%, 4.35%, 4.36% and 5.35%, respectively. Hours worked and employment trends remained broadly stable, with modest m/m deterioration but continued y/y improvement in labor market conditions. TAIEX -0.3% to 33338, USDTWD -0.151% to 31.89, 10y TGB +4.9bp to 1.553%.

Hong Kong’s February exports rose 24.7% y/y to HK$408.8bn, while imports increased by 29.9% y/y to HK$472.9bn, resulting in a trade deficit of HK$64.2bn, equivalent to 13.6% of imports. For January-February combined, exports grew by 29.6% y/y and imports by 34.1%, with a cumulative deficit of HK$79.0bn (7.8% of imports). On a seasonally adjusted basis, exports increased by 15.8% and imports by 17.7% over the preceding three months. Growth was broad-based across markets, particularly in Asia and key advanced economies, and driven by electronics-related categories. Authorities noted strong momentum supported by AI-related demand but flagged rising geopolitical tensions and trade policy uncertainty as key risks to the outlook. Hang Seng -1.89% to 24856, USDHKD +0.073% to 7.8242, 10y HKGB -1.2bp to 1.417%.