Key Highlights

• Bank of Japan holds rates in a surprise 6-3 vote, seen as hawkish.
• President Trump will address a deal with Iran “soon,” after a national security team meeting.
• China’s politburo calls for a strengthening of energy security.

Chart of the Day

Euro area consumer inflation expectations, median across time horizons

^{Source: BNY}

The ECB’s March consumer survey released overnight has pushed up rate hike expectations for the rest of the year. At over 66bp, the priced-in ECB tightening is now more aggressive than the path for the BoE, which marks a reversal given that the U.K. has traditionally been seen as more susceptible to stagflation risk.

Median inflation expectations for the next 12 months have jumped to 4% from 2.5% in February, and some hawks may feel justified in acting early and aggressively to remove any hint of inflation expectations being unanchored. They will likely point to three-year inflation expectations jumping to 3%, the highest reading since March 2023, as evidence. In our view, taking such action based on one particular point in a very volatile environment would carry significant risks.

Furthermore, we believe the ECB should also draw a clear distinction between the current cycle and 2022, when inflation expectations had already started to rise well before the Ukraine conflict. Forward inflation expectations had jumped to 3% in H2 2021, indicating that inflation expectations had already begun moving, and the ECB was too slow to act in 2021 rather than the contrary.

Taking into account base effects, a surge in forward inflation to 4% or higher is also difficult to envisage at this stage, as European energy resilience has improved strongly. The demand gap in 2021 was to the upside due to the pandemic, surpassing any energy-related downside shock. Currently, the risk is purely to the downside as households adjust to the new realities. The same survey today highlights that household income growth expectations remain unchanged, but that spending growth was higher because of costs. The resulting hit to real incomes is evident, and household compensation will be strong. We believe the ECB must, like its peers, zero in on wage expectations, and price risks are contained for now on this front, if not skewed to the downside.

What's Changed?

The cost of the conflict proved to be another hurdle for investors overnight, with stocks mixed, bonds lower, USD higher and gold lower. Worries about higher prices and lower growth hang over risk-taking across asset markets as we embark on another day of earnings and economic reports. The track ahead for trading is not a flat sprint but a high-hurdle event, with central bankers leading after the BoJ meeting and heading into the ECB and FOMC decisions. In Asia, the KOSPI set a new record high, while the Nikkei and the CSI both lost ground. The Euro Stoxx 600 is flat after a bumpy start, while U.S. futures are down, paced by tech concerns.

Hawkish BoJ hold: Foreshadowing of other G10 central bank decisions may be the key risk for equities this week from the 6-3 vote to keep rates on hold. The Japanese central bank’s actions in lifting core inflation forecasts to 2.8% while cutting the growth outlook to 0.5% highlight the stagflationary hurdles posed by higher energy prices. Its decision to keep rates at 0.75% but reference the timing and pace of future adjustments provides a guide to expectations despite the ongoing war uncertainty. The JGB market has flattened, with 2y rates up 1.2bp to 1.355% and 30y down 3.8bp to 3.61%. Japanese life insurers see 10y rates of 3% as a key target for new investment in domestic debt.

• Oil and the talks: Brent has gained 2.5%, taking it above $110/barrel again, which adds to inflation concerns ahead. Iran’s crude oil storage capacity is estimated to hit its limits in three weeks or less, bringing with it the risk of production shutting down. Oil production could be impaired for 1.5 million barrels/day, and it will take months to redrill and return. Vessel crossings through the Strait of Hormuz remain minimal, but one LNG tanker from the UAE did make it through, providing some hope, while the IRGC boarded two container ships. Talks aimed at ending the conflict are ongoing, even though both sides are skeptical about a shift from the current truce and blockade.
• Earnings and tech: The 45% of the S&P 500 market cap reporting this week dominates, but the rest of the world matters too. Overnight earnings reports from Europe showed clear bifurcation in the impact of the conflict. Barclays recorded lower trading revenue than hoped, while BP saw an oil price windfall. Chemical companies were hit by the uncertainty over forecasts, while Switzerland’s Novartis saw its first revenue decline. The WSJ has reported that OpenAI falling short of key revenue and user targets may slow future spending on data centers. This will be a key focus for the hyperscalers reporting tomorrow. Adding to OpenAI hurdles is the ongoing jury trial between Elon Musk and Sam Altman.

Bottom line: There is plenty of news for U.S. markets to consider ahead of the big FOMC decision and four big-tech earnings releases tomorrow. Today brings Visa, Coca-Cola and T-Mobile, which will turn the spotlight on the U.S. consumer. We also get more U.S. coupon sales, after mixed 2y and 5y auctions yesterday. Higher rates and higher energy costs are keeping up the pressure on risk, with the USD bounce-back testing the conflict correlation to equities as well. There is plenty of economic data to consider, and the growth and inflation risks will be keenly watched. Proving out the stagflationary economy, even with robust earnings for the S&P 500 in Q1, means outlooks for Q2 and beyond remain critical. The race today involves less momentum and more uncertainty, as investors count their steps between hurdles.

What You Need to Know

The BoJ has held its benchmark interest rate steady at 0.75% in a 6-3 split vote, signaling increased pressure to normalize policy and boosting expectations of a June hike. Governor Kazuo Ueda highlighted the upside inflation risks and raised the core inflation forecast to 2.8% for the fiscal year, while revising economic growth down to 0.5%. The BoJ emphasized the need to monitor Middle East developments and oil prices amid geopolitical tensions. Although the result was in line with expectations, the vote is the biggest split yet during Ueda’s term of office. Balancing growth concerns against surging inflation expectations is expected to divide central banks globally in the coming months, with split votes likely in the U.K. and Eurozone on Thursday. Nikkei -1.02% to 59917, USDJPY -0.126% to 159.35, 10y JGB -0.1bp to 2.476%.

China’s first economy-focused Politburo meeting since the outbreak of the Iran conflict set the policy tone in response to the resulting global energy shock, with leaders pledging to counter external risks and strengthen energy and resource security. The meeting, led by President Xi Jinping, reflects elevated concern over potential oil supply disruptions, particularly via the Strait of Hormuz, even as officials emphasized that domestic conditions have so far remained resilient. Authorities highlighted stronger-than-expected Q1 growth and limited immediate spillovers, supported by prior efforts to bolster energy security. However, they acknowledged that downside risks from higher oil prices are weighing on consumption and exports. Policymakers signaled a wait-and-see stance on further stimulus, with fiscal support ongoing and monetary easing expectations reduced as inflation pressures rise. CSI 300 -0.27% to 4758, USDCNY +0.138% to 6.836, 10y CGB -0.2bp to 1.761%.

The first liquefied natural gas shipment since the war in the Middle East began two months ago appears to have traversed the Strait of Hormuz and exited the Persian Gulf. The Mubaraz – which loaded a cargo from Abu Dhabi National Oil Co.’s Das Island facility in the UAE around early March – is now passing the southern tip of India, according to ship tracking data. The tanker had been idling inside the Gulf but stopped sending signals around March 31, before reappearing east of India on April 27. The shipment will do very little to alleviate supply fears, given that three loaded LNG carriers transited the strait per day on average before the conflict. HH natural gas -1.451% to 2.513, Dutch TTF natural gas +0.457% to 44.85.

Europe ramped up military spending in 2025, helping drive global defense outlays to a staggering $2.89tn, says the Stockholm International Peace Research Institute (SIPRI). Major rearmament programs in Asia also contributed to pushing global defense spending higher for an 11th straight year. The SIPRI said the increase was fueled by “another year of wars, uncertainty and geopolitical upheaval with large-scale armament drives.” Global military spending as a share of GDP climbed to 2.5%, its highest level since 2009. Europe was the main driver of the increase in global spending, with spending rising 14% to $864bn. Despite the investment boost, defense holdings in developed European equities are down vs. their 2025 highs. Euro Stoxx 50 +0.22% to 5873, EURUSD -0.171% to 1.1701, BBG AGG Euro Government High Grade EUR 0bp to 3.282%.

What We're Watching

Hungarian central bank rate decision: a hold at 6.25% is expected, in the first decision since the election.

U.S. February FHFA House Price Index forecast steady at 0.1% m/m vs. 0.1% m/m.

U.S. February S&P Cotality Case-Shiller 20-City Index is expected at 0.19% m/m, 1.13% y/y vs. 0.16% m/m, 1.18% y/y in January.

U.S. April Richmond Fed Manufacturing Index forecast up at 1 vs. 0 prior while business conditions are expected at 0 from 2.

U.S. April Conference Board Consumer Confidence forecast to drop to ease to 89 vs. 91.8.

U.S. April Dallas Fed Services Activity is expected at -12 vs. -13.3.

U.S. Treasury sells $70bn in 6-week bills, $30bn in 2y FRNs and $44bn in 7-year notes.

What iFlow is Showing Us

Mood: iFlow Mood eased to 0.160, as demand for core sovereign bonds picked up to the strongest level in a month, while equity inflows remained firm.

FX: Flows were mixed and moderate. LatAm saw renewed outflows after sustained inflows since late 2025. AUD, NOK and MXN led outflows, while HKD and ZAR attracted the strongest inflows. EUR, JPY and CNY recorded light selling, versus inflows into GBP and USD.

FI: Australia and broader APAC bonds faced selling, offset by strong demand for Eurozone government bonds and U.K. gilts, with moderate flows into U.S. Treasurys. Cross-border flows favored the 3-5y and >10y segments, with selling in the 7-10y segment.

Equities: Chinese and LatAm equities saw solid inflows, while selling was concentrated in Switzerland, Hungary, the Philippines and South Korea. Within EM Americas, materials led inflows, while industrials and healthcare saw light outflows.

Quotes of the Day

“There are hurdles, there are handicaps, hardships you have to face in life, but you hope for a great future.” – Anil Kapoor

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” – Maya Angelou

Economic Details

Euro area consumer inflation expectations showed a marked upward shift across horizons in March. Perceived inflation over the past 12 months rose to 3.5% from 3.0%, while one-year-ahead expectations jumped to 4.0% from 2.5% and three-year expectations increased to 3.0%. Longer-term expectations edged up slightly to 2.4%. At the same time, nominal income growth expectations remained unchanged at 1.2%, but expected spending growth rose to 4.1%, indicating stronger consumption intentions. Economic sentiment weakened, with growth expectations turning more negative and unemployment expectations rising. Housing price and mortgage rate expectations also increased, while inflation uncertainty picked up, with broadly consistent trends across income groups despite some level differences. Euro Stoxx 50 +0.22% to 5873, EURUSD -0.171% to 1.1701, BBG AGG Euro Government High Grade EUR 0bp to 3.282%.

Italy’s industrial producer prices rose sharply in March, up 4.4% m/m and 4.2% y/y, rebounding from a previous y/y decline. This was driven by energy price increases in the domestic market. Domestic industrial prices surged by 5.9% m/m and 5.4% y/y, while excluding energy the increases were much more modest at 0.4% and 1.5%, respectively. Foreign market prices showed limited gains, rising 0.9% m/m and 1.1% y/y. Over Q1, industrial producer prices increased by 2.5%, led by domestic dynamics. Construction producer prices also strengthened, with sizable increases in both the building and infrastructure segments, reflecting higher input and labor costs. FTSE MIB +1.08% to 48190, EURUSD -0.171% to 1.1701, 10y BTP +5.2bp to 3.881%.

Italy’s industrial and services turnover showed mixed dynamics in February, with industrial turnover rising 0.6% m/m by value but falling 0.1% by volume, while services turnover declined by 0.1% in value terms and 0.3% in volume terms. Industrial performance was driven by external demand, with foreign sales increasing strongly and offsetting domestic weakness, while weakness in services was led by wholesale trade. On a q/q basis, industrial turnover edged up by value but declined slightly by volume, whereas services increased by value. Y/y, both sectors recorded growth, with industry up 0.5% by value and services rising by 2.4%, though energy remained a significant drag within industry.

The Spanish labor market deteriorated in Q1, with employment falling by 170,300 q/q to 22.29 million, while unemployment increased by 231,500 to 2.71 million. That pushed the jobless rate up to 10.83%. Despite the quarterly weakness, employment remained higher on a y/y basis, rising by 527,600, while unemployment decreased by 80,600 over the same period. The drop in employment was driven primarily by services, partially offset by gains in industry, construction and agriculture, while unemployment rose across most sectors. Seasonally adjusted data showed modest improvement in employment and a slight reduction in unemployment, suggesting underlying resilience despite headline volatility. IBEX 35 +0.8% to 17793, EURUSD -0.171% to 1.1701, 10y Bono +3.7bp to 3.528%.

The Spanish Retail Trade Index (RTI) for March rose 4.1% y/y in constant prices vs. 2.3% y/y in February. M/m sales growth was 1.2% vs. flat in February, with all distribution classes rising; single-site companies led with a 2.5% increase. Excluding service stations, sales rose 1.6% m/m, driven by food (+1.0%) and non-food products (+1.8%). Employment in retail rose 0.9% y/y, 0.2 points above February’s rate. Elsewhere, Spain’s Economically Active Population Survey (EAPS) for Q1 showed employment falling by 170,300 to 22.293 million (-0.76% q/q), with a 12-month increase of 527,600 (+2.42% y/y). Job losses occurred mainly in services (-228,400), while industry, construction and agriculture saw gains. Full-time employment declined by 116,500. Unemployment rose by 231,500 to 2.709 million (+9.34% q/q), pushing the unemployment rate up 0.9 percentage points to 10.83%.

U.K. shop price inflation, as measured by the British Retail Consortium, eased to 1.0% y/y in April from 1.2% in March, driven by Easter discounts on chocolate eggs, home renovation materials and clothing. Meanwhile sales volumes recorded their steepest fall in over 40 years. Food price inflation slowed to 3.1% y/y from 3.4%. Retailers competed on price amid weakening consumer confidence. The BRC noted that inflation pressures from the Iran conflict are expected soon. The result supports our view that demand restraints will help limit core inflation gains, obviating the need for tightening. The BoE is monitoring cost pass-through but will likely keep interest rates steady for now. FTSE 100 +0.21% to 10343, GBPUSD -0.252% to 1.3501, 10y gilt +2.3bp to 4.995%

Sweden’s goods trade balance recorded a surplus of SEK 9.3bn in March, narrowing from SEK 10.9bn a year earlier, with exports at SEK 195.1bn and imports at SEK 185.8bn. The value of exports rose by 5% y/y while imports increased by 6%, suggesting slightly stronger import demand, though the comparison is affected by one additional working day. Trade with non-EU countries generated a surplus of SEK 26.2bn, offset by a deficit of SEK 16.9bn with EU partners. On a seasonally adjusted basis, net trade shifted to a small deficit of SEK 0.5bn. Over January to March 2026, the cumulative surplus narrowed significantly to SEK 16.4bn from SEK 30.9bn. OMX -0.13% to 3076, EURSEK +0.193% to 10.8294, 10y Swedish GB +2.8bp to 2.89%.

South Africa’s composite leading business cycle indicator rose 0.5% in February, reflecting broad-based improvement as gains in seven out of ten components outweighed declines in three. The main positive drivers were higher residential building plans approved and a rise in the USD-denominated export commodity price index, while weaker domestic manufacturing orders and slower growth in job advertisements acted as drags. The composite coincident indicator rose by 0.3% in January 2026, supported by stronger industrial production and higher real wholesale, retail and motor trade sales, pointing to modest improvement in current economic activity. In contrast, the composite lagging indicator declined by 0.3% in January 2026, signaling some softening in backward-looking economic conditions. JSE TOP 40 -0.67% to 108089, USDZAR +0.272% to 16.5868, 10y SAGB +7.1bp to 8.856%.

Japan’s labor force survey for March 2026 shows employment (not seasonally adjusted) at 67.73 million, up 30,000 from March 2025, marking a second consecutive m/m increase. The unemployment rate rose to 2.7% (seasonally adjusted), up 0.1 percentage points from February 2026, with the unemployment count increasing by 140,000 y/y for the eighth consecutive month. Employment growth was seen in accommodation, food services, information and communications, and transportation sectors. The employment rate for those aged 15+ was 61.8%, up 0.1 points y/y. The non-labor-force population shrank by 360,000 y/y, continuing a 49-month downward trend. Nikkei -1.02% to 59917, USDJPY -0.126% to 159.35, 10y JGB -0.1bp to 2.476%.

Japan’s final machine tool orders rose 28.0% y/y in March, up from 24.2% in February. Domestic orders increased modestly by 2.5% y/y, while foreign orders surged 40.4% y/y. On a m/m basis, total orders jumped 31.8%, driven by a 35.8% rise in domestic and 30.5% in foreign orders. Key sectors with notable y/y growth included electrical and precision machinery (+38.2%) and metal products (+39.9%), while autos declined by 29.6%. Total order value reached ¥193.47bn in March, up from ¥146.74bn in February. Production figures across Asia are generally not showing any supply strain but costs are likely rising and eroding margins, which at some point may lead to an inflationary impact on intermediate and finished goods globally.

New Zealand employment indicators for March 2026 showed a 0.3% m/m increase in seasonally adjusted filled jobs to 2.35 million (February: +0.3%). The y/y growth in employment turned positive (0.255% y/y) for the first time since May 2024, suggesting a reversal of full unemployment data ahead (Q4 2025: 5.4%). By industry, health care and social assistance (+1.8%), public administration and safety (+3.1%) and education and training (+1.5%) saw gains, while manufacturing and construction declined by 1.5% each. By region, Canterbury (+1.8%) and Otago (+1.6%) led growth, with Northland (-2.3%) and Wellington (-0.5%) declining. Female employment rose 0.3% y/y; male employment was flat. Gross earnings increased by 2.5% y/y to NZ$16.7bn. NZX 50 -0.86% to 12764, NZDUSD -0.423% to 0.5887, 10y NZGB +1.7bp to 4.705%.

South Korea’s Composite Business Sentiment Index (CBSI) rose to 94.9 in April, up 0.8 points m/m. This is the highest level since July 2024. The BoK commented that the improvement in business sentiment was partly driven by better manufacturing conditions amid solid export growth and higher selling prices. But the biggest factor was a decline in inventories, as companies used existing stock in response to disruptions in raw material supply stemming from the Middle East crisis. The manufacturing sector’s CBSI increased by 2.0 points to 99.1, with its outlook up 2.1 points to 98.0. The non-manufacturing sector’s CBSI edged up 0.1 points to 92.1, while its outlook remained at 91.2. However, the overall Economic Sentiment Index (ESI), combining business and consumer surveys, declined by 2.3 points to 91.7 compared with the previous month. KOSPI +0.39% to 6641, USDKRW -0.004% to 1474.25, 10y KTB +0.5bp to 3.82%.

Taiwan’s Executive Yuan, led by Premier Chuo Rong-tai, has announced the extension of raw material stabilization measures until Q4 2026 in response to rising international prices caused by the Middle East conflicts. Domestic raw material supply is expected to remain stable through August. The Ministry of Transportation will implement taxi fuel subsidies from May 20 and has introduced price stabilization measures for highway buses, domestic shipping and aviation to offset fuel cost pressures. Asphalt inventory is sufficient to meet demand until the end of June. Authorities will continue monitoring price trends to ensure market stability. TAIEX -0.24% to 39522, USDTWD -0.2% to 31.53, 10y TGB +2.4bp to 1.504%.

As of end-March, the six major Taiwanese life insurers’ foreign exchange price fluctuation reserves totaled TW$476.6bn, down TW$2.4bn m/m and TW$18.18bn q/q from TW$494.88bn at end-December. Cathay, Fubon, Nan Shan, KGI and Taiwan Life saw q/q increases, while Shin Kong Life recorded a decline. Fubon Life’s reserves rose to over TW$147bn at end-March, up more than TW$0.7bn from February, marking a record high. Cathay Life’s reserves had increased to over TW$123bn by March, benefiting from a weaker TWD. Shin Kong Life’s reserves fell to over TW$56bn following its merger.

The Reserve Bank of India (RBI) has ordered banks to report all OTC foreign exchange derivative contracts involving INR undertaken globally by their related parties to the Clearing Corporation of India’s trade repository. This includes both deliverable and non-deliverable contracts. Starting July 1, 2027, banks must report at least 70% of the notional value of such contracts involving related parties other than the parent entity. Full compliance with this reporting requirement will be enforced from July 1, 2028. The RBI has also relaxed some proposed rules related to capital and risk weighting for banks and will now allow greater flexibility on foreign bank branch ratings, large unrated exposures and retail lending classifications. However, it has retained stricter treatment for real estate and higher-risk assets. SENSEX -0.44% to 76960, USDINR -0.397% to 94.57, 10y INGB +3.8bp to 6.98%

Thailand’s Ministry of Finance has cut its 2026 GDP growth forecast to 1.6% (previously 2%) due to the impact of the Iran war on prices and demand, with a revised range of 1.1-2.1% (January: 1.5-2.5%). Headline inflation is projected at 3% (January: 0.3%) and core inflation at 2.1% (January: 0.7%). Merchandise export growth is expected at 6.2% (January: 1%), while the current account surplus is forecast at $6bn (January: $12bn). The tourist arrivals estimate has been lowered to 33.5 million (January: 35.5 million) because of the Middle East conflict and regional competition. Private consumption growth is seen slowing to 2.3% in 2026. SET -0.5% to 1472, USDTHB -0.484% to 32.495, 10y TGN +0.6bp to 2.138%.

Hong Kong’s total exports rose 35.8% y/y in March to $618.4bn (February: 24.7%) while imports grew 41.2% y/y to $707.5bn (February: 29.9%), resulting in a trade deficit of $89.1bn. For Q1, exports grew by 32.0% y/y and imports by 37.0%, with a $168.4bn deficit. Exports to Asia surged 37.8%, with substantial rises in exports bound for Singapore (+125.0%), Malaysia (+62.3%) and mainland China (+39.5%). Key export commodities included electrical machinery (+47.9%) and telecommunications equipment (+94.7%). Despite geopolitical risks and rising energy prices, strong global demand for AI-related electronics is supporting export growth. Hang Seng -0.88% to 25697, USDHKD +0.035% to 7.835, 10y HKGB -1.2bp to 1.417%.

Bank Negara Malaysia (BNM) has launched an MYR 5bn SME Stabilization Relief Facility (SME SRF) to support SMEs affected by the Middle East conflict. The facility offers financing of up to MYR 750,000 for up to five years at a maximum rate of 3.75% p.a., backed by up to 80% guarantees from Credit Guarantee Corporation Malaysia. Applications will be open via participating banks from May 15 to December 31, 2026. The BNM is urging affected businesses to engage early with financial institutions for tailored support, including repayment flexibility and restructuring. Additional advisory and debt management assistance is available through AKPK programs. KLCI +0.29% to 1722, USDMYR -0.031% to 3.9527, 10y MGB -2.2bp to 3.537%.