Key Highlights

• President Trump pressures NATO allies and China to help reopen the Strait of Hormuz.
• Populist parties perform well in French municipal elections.
• Oil prices surge as Fujairah port is hit for the second time in two days.

Chart of the Day

Limited surge flow into Australia ahead of anticipated hawkish RBA meeting

^{Source: BNY}

AUD is heading into tomorrow’s RBA decision with one of the most aggressive policy profiles in the G10. Even before the start of the conflict, markets were pricing in more assertive RBA hikes due to domestic price pressures, and in fairness the RBA itself did very little to dissuade flows from this view. However, since the conflict began, there has been acceleration in pricing for various reasons. Firstly, backward-looking domestic data continue to point to price strength without commensurate productivity offsets, which requires tightening. Secondly, despite Australia’s clear natural gas prowess, there are challenges in other products such as refined crude oil, and the Australian government has already confirmed the need to release strategic reserves. Thirdly, current developments should generally improve Australia’s terms of trade, but the corresponding demand impulse may also require an offset.

Given these factors in play, we are not seeing surge flow into AUD, which is surprising given the liquidity and ratings advantages that are in place. The first week of the conflict generated relatively strong sales, but these have since seen some offsetting flows. Should the RBA confirm market pricing, performance will likely hold or even improve further, as positioning is clear. However, its risk beta to Asia is also a factor, and it may prove difficult to add to AUD independently when the likes of KRW and JPY are facing significant downside risk in the near term.

AUDUSD’s current performance is surprisingly better than the AUD aggregate, and last week even saw three straight days of inflows above 1.0 in flow magnitude – the first such run this year. However, the intensity of AUD cross flow, especially in January, has undermined the currency’s aggregate performance relative to the pair. These are, however, the very positions that could struggle right against AUD, especially as Australia is one of the few economies which could benefit from a terms-of-trade shock. As Fed easing expectations are priced out, we wouldn’t be surprised to see AUDUSD struggle; however, if the RBA affirms current pricing while much of the G10 begins to struggle with stagflation, AUD’s aggregate averages could improve markedly.

What's Changed?

As the war with Iran continues, oil prices are dictating the mood and headlines from the Strait of Hormuz are driving markets. This week will test the patience of investors that see a short conflict with oil noise but stable financial assets. The weekend delivered more talk of talks, but less action. From food trade talks with China in Paris, Iran and India discussing oil, and Canadian Prime Minister Mark Carney visiting London to talk about the war with U.K. Prime Minister Sir Keir Starmer, there is plenty of geopolitical angst revolving around the duration of the conflict and how to alleviate the symptoms of inflation resulting from it. Concerns for the week revolve around how central bankers see through these matters.

• Oil and the Strait: Three vessels were confirmed as having made it through the Strait of Hormuz on Sunday, down from 138 normally. The route taken by a Pakistani tanker, which involved hugging the coast of Iran, suggests mine avoidance in play and tacit Iranian clearance. However, the drone strikes on a UAE oil port have left markets unable to see any quick solutions. Oil curve inversion (“backwardation”) continues across the U.S., the U.K. and other oil markets. The focus is on Brent at $120 and WTI at $110 as the next key levels for further risk deleveraging.
• Chinese talks and growth: China has announced better activity data, suggesting the economy got off to a good start before the war. The meetings with U.S. Treasury Secretary Scott Bessent were less boisterous, despite with President Trump’s wrinkle over the naval aid request for the Gulf. It is notable that only Chinese shares posted gains overnight and that CNY is up 0.1%, as Beijing pushes stability and safe haven status.
• Japan, South Korea and intervention: In Japan, Finance Minister Satsuki Katayama is continuing to focus on JPY, with the currency up 0.2% at 159.35 after testing 159.75 overnight. Katayama is ready to take bold steps to defend the yen. At the same time, JGBs fell as BoJ bond buying operation results were weak ahead of a key 20y bond sale. The focus is on JPY weakness, oil-induced inflation and how the BoJ and government act against these. South Korea is in much the same situation, after KRW broke through the 1,500 mark but was unable to hold. Both countries have delivered verbal intervention threats. Markets will continue to test exchange rates until their finance and central bank authorities deploy reserves to intervene outright, rather than just talk.

Bottom line: There is one break in correlation that looks important to investors as they embark on the “lucky” week of central bank decisions and St. Patrick’s Day celebrations. The USD and the dollar/oil link look different. So too does the link between USD and equities. Investors could be shifting gears waiting for clarity over the duration of the war, but they also could be trading for a bottoming out into quarter-end. There is an expectation that this conflict will end before May. There is also an expectation that the Q1 earnings reports to come in April will support stocks. The drag for optimism revolves around credit, and the level rather than the spread of contracts matters as the need to mark-to-market risk dominates. For today, the focus on economic hits from the conflict will continue as second-tier data are announced, with any confirmation of stagflation posing a risk that U.S. 10y yields could breach 4.31%. The one barometer that looks to be in play is oil/gold; after peaking at 86 barrels of oil to 1 oz of gold, this measure is now below 50. Watch for its effect on USD as the leverage unwind continues. 

What You Need to Know

President Trump has warned that Nato faces a “very bad” future if U.S. allies fail to assist in efforts to reopen the Strait of Hormuz, pressing European partners to support the U.S.-led campaign against Iran. Speaking to the Financial Times, Trump argued that countries benefiting from Gulf oil shipments, including Europe and China, should help secure the chokepoint through which about one-fifth of global supply passes. He said allies could contribute minesweepers or military support to counter Iranian drones and naval mines, while also urging Beijing to act before his planned visit to China later this month. Trump suggested the summit with Xi Jinping could be delayed if cooperation is not forthcoming, as oil prices rose to about $106 a barrel following the disruption. Brent +2.735% to 105.96, WTI +1.662% to 100.35.

The UAE’s Fujairah oil port has suspended loadings again after being hit by another strike, highlighting mounting risks to regional energy supplies amid the Middle East conflict. Operations were halted on Monday as damage from the latest attack was assessed, according to people familiar with the matter; loadings had only just resumed over the weekend following a drone strike that caused a fire on Saturday. Fujairah, which is located outside the Strait of Hormuz and linked by pipeline to Abu Dhabi’s main oil fields, has become increasingly important as the war has effectively closed the key shipping route. The repeated disruptions underscore threats to global oil flows, with the International Energy Agency warning that the conflict has caused unprecedented supply disruptions.

Reuters has reported that the Japanese government is considering deploying self-defense forces to the Middle East for information-gathering operations aimed at protecting Japanese-linked vessels and crews amid rising regional tensions. Officials are exploring a mission similar to the 2019 deployment, which excluded the Persian Gulf and the Strait of Hormuz and instead focused on nearby waters such as the Gulf of Oman and the Arabian Sea. Sources said Prime Minister Sanae Takaichi may inform President Trump during a planned leaders’ meeting that Japan is examining such a deployment. The government has stressed that no decision has been made, while officials have also ruled out direct escort operations in the Strait of Hormuz as long as active fighting continues. Nikkei -0.127% to 53751.15, USDJPY -0.238% to 159.35, 10y JGB +1.6bp to 2.276%.

Marine Le Pen’s Rassemblement National made gains in the first round of France’s municipal elections, strengthening its position in several cities and signaling growing support ahead of the presidential election to replace Emmanuel Macron. The party performed strongly in southern cities including Marseille, Nice, Toulon and Perpignan, with candidates placing first or second and advancing to run-offs scheduled for March 22. However, analysts said final victories remain uncertain as rival parties may form alliances to block the far right in the second round. Elsewhere, the Socialist party appears on track to retain control of Paris, while former prime minister Édouard Philippe led in Le Havre. Even without outright mayoral wins, the RN could secure a record number of local councilors. CAC 40 -0.106% to 7903.16, EURUSD +0.193% to 1.1439, 10y OAT -1.1bp to 3.662%.

Indonesian assets struggled overnight after Coordinating Minister for Economic Affairs Airlangga Hartarto warned the government may struggle to keep the budget deficit below the legal cap of 3% of GDP. Higher oil prices linked to Middle East tensions are placing a strain on the public finances. Government modeling of three scenarios based on different oil price and rupiah exchange rate assumptions showed the deficit cap would be difficult to maintain without spending cuts that could slow economic growth. Under a worst-case scenario in which benchmark crude averages $115 per barrel and the rupiah weakens to 17,500 per dollar, the deficit could widen to as much as 4.06% of GDP. Officials are also considering an emergency regulation to temporarily raise the deficit ceiling, subject to a political decision by President Prabowo Subianto. JCI -1.841% to 7005.811, USDIDR +0.272% to 16990, 10y IDGB +11.1bp to 6.908%.

What We're Watching

U.S. March Empire Manufacturing forecast to ease to 3.9 from 7.1 in February.

U.S. February industrial production is expected to slow to 0.1% m/m from 0.7% in January, while manufacturing production is expected to drop to 0.2% m/m from 0.6% in January and capacity utilization is seen holding steady at 76.2%.

U.S. March NAHB Housing market index is expected to rise to 37 from 36 in February.

U.S. Treasury sells $89bn in 13-week bills and $77bn in 26-week bills.

What iFlow is Showing Us

Mood: Risk aversion mode has intensified, with investor flows showing both selling of equities and buying of core sovereign bonds. iFlow Mood has drifted further into negative territory at -0.113.

FX: TRY, INR, SGS and EUR dominated the selling pressure, against broad inflow trends in the rest of the iFlow universe. CNY, COP, PLN and ZAR posted significant inflows, followed by demand in BRL, CLP, CHF, CAD, AUD, USD and KRW.

FI: Broad buying of G10 sovereign bonds, led by Eurozone government bonds, followed by U.K. gilts, U.S. Treasurys and New Zealand government bonds. Elsewhere, APAC government bonds were sold, especially in China, Indonesia and the Philippines, followed by South Korea. Türkiye was sold aggressively too.

Equities: Broad selling pressure, except for buying in LatAm and Malaysia. Swiss, Swedish, Eurozone, Chinese and Indian equities were sold. 

Quotes of the Day

“In the broad definition, the word leverage simply means the ability to do more with less.” – Robert Kiyosaki

“Knowledge creates leverage, and leverage is more powerful than money.” – Ben Rinberg

Economic Details

Italy’s public debt increased to €3.112tn in January, up from €3.096tn in December. The rise reflected a €7.8bn financing requirement for general government alongside other technical factors and changes in Treasury liquidity. Government debt remains dominated by medium-term and long-term securities, while the average residual maturity of the debt stock was broadly stable at around 7.9 years. Most liabilities continue to be denominated in euro, with only a very small share in foreign currency. Data also show that both resident and non-resident investors hold significant portions of the debt stock, with non-resident holdings remaining above €1tn. FTSE MIB -0.386% to 44145.69, EURUSD +0.193% to 1.1439, 10y BTP -0.7bp to 3.782%.

Dutch goods export volumes increased by 1.1% y/y in January, adjusted for the number of working days. The rise was mainly driven by higher shipments of minerals and of textiles and clothing. Meanwhile, the volume of goods imports grew more strongly, up 5.0% y/y, supported by higher purchases of minerals, electronic products, transport equipment and machinery. Goods exports account for around three-quarters of the country’s total exports, while monthly figures for services exports are not published. Separate indicators show export conditions had improved slightly by March compared with January, reflecting less negative producer confidence in the euro area and Germany, although such indicators do not necessarily translate directly into stronger export growth. AEX +0.179% to 1003.45, EURUSD +0.193% to 1.1439, 10y NGB -0.8bp to 3.138%.

In the U.K. housing market, the average new seller asking price increased by 0.8% m/m (+£3,023) to £371,042 in March, reflecting a typical seasonal rise despite heightened global uncertainty linked to the Iran war. Rightmove data show housing market activity has remained broadly stable so far this month, with the number of agreed sales running 2% below the strong market seen a year earlier, when transactions were boosted by a stamp duty deadline, but still 5% above 2024 levels. New property listings were 3% lower than last year but 7% higher than in 2024, indicating continued seller participation in the spring selling season. The number of homes for sale remains at its highest level for 11 years, which is limiting price growth and increasing competition among sellers. FTSE 100 +0.243% to 10286.05, GBPUSD +0.106% to 1.3244, 10y gilt -0.8bp to 4.815%.

Norway’s trade surplus in February stood at NOK 44.8bn, marking a sharp decline from the unusually high level recorded in January and bringing the balance closer to levels seen throughout much of 2025. Total goods exports were NOK 133.1bn, the lowest value since September, while imports rose 12.5% m/m to NOK 88.3bn, largely reflecting a rebound in car imports after a sharp January drop and a doubling of electricity imports. Mainland exports fell 9.3% m/m to NOK 56.4bn due to weaker shipments of electricity, seafood and refined petroleum products. Oil exports totaled NOK 34.4bn as lower export volumes offset higher prices, while natural gas exports declined to NOK 41.7bn amid softer prices and reduced volumes. OSE +0.924% to 1963.93, EURNOK -0.147% to 11.1357, 10y NGB +0.9bp to 4.337%.

Czechia’s February producer prices showed mixed trends across sectors, with agricultural producer prices falling 1.6% m/m and 8.1% y/y, while industrial producer prices rose 0.1% m/m but were down 2.9% y/y. Construction work prices increased by 0.5% m/m and 2.7% y/y, and service producer prices in the business sphere climbed 1.5% m/m and 3.4% y/y. The fall in agricultural prices reflected lower prices for products such as fruit, potatoes, cereals and milk, while industrial prices were weighed down by falls for energy, chemicals and food products. Meanwhile, higher prices in sectors including advertising, broadcasting and telecommunications contributed to the increase in service producer prices. Construction material prices also rose 0.5% m/m and 1.9% y/y. Prague SE +0.658% to 2532.5, EURCZK +0.029% to 24.458, 10y CZGB +2.4bp to 4.988%.

Türkiye’s central government budget recorded a surplus of TRY 24.4bn in February, with revenues reaching TRY 1.353tn and expenditures totaling TRY 1.329tn, according to the Ministry of Treasury and Finance. Tax revenues came to TRY 1.122tn while non-interest expenditure was TRY 1.146tn and interest expenditure was TRY 183.7bn. Compared with last February, budget revenues increased sharply, while expenditure rose 28.6%. Over January-February, the central government budget posted a deficit of TRY 190.2bn as expenditure reached TRY 2.965tn and revenues totaled TRY 2.775tn, while the primary balance recorded a surplus of TRY 449.9bn. BI 100 -0.939% to 12969.98, USDTRY -0.017% to 44.188, 10y TGB +28bp to 33.14%.

South African inflation expectations in the first quarter of 2026 (the second survey after the inflation target was changed to 3%) indicated marginal improvement, as the average five-year inflation expectations of the three professional groups decreased slightly to a record low of 3.6% (from 3.7% previously). The South African Bureau for Economic Research highlighted that next-year expectations also decreased marginally (0.1 percentage points) to 3.6%. In contrast, household inflation expectations reversed their downward trend: one-year expectations were 5.4% (5.3% previously), while five-year expectations rose from 7.7% to 8.4%. However, the information value of such surveys in the near term will be called into question if the sample period was before the Iran conflict began. JSE TOP 40 -0.107% to 107170.7, USDZAR -0.308% to 16.8804, 10y SAGB +13.1bp to 9.175%.

New Zealand’s services sector contracted in February 2026, as the BNZ-BusinessNZ Performance of Services Index (PSI) fell to 48.0 points, down 2.7 vs. January and below the historical average of 52.8. All main sub-indices were in contraction, led by stocks/inventories (46.7) and employment (47.2). Negative sentiment remained high at 56.4%, as weak economic conditions, high living costs, inflation, interest rates, staffing constraints and low confidence were all cited as key factors. The slower recovery contrasts with a more positive manufacturing outlook, indicating uneven economic momentum. NZX 50 -0.173% to 13164.58, NZDUSD +0.624% to 0.581, 10y NZGB +7.7bp to 4.739%.

In New Zealand, electronic card transactions rose by 1.1% m/m in February 2026 to NZ$9.2bn, with 168 million transactions averaging NZ$55. Retail spending increased by 1.4% m/m (+NZ$95mn), led by core retail (+1.6%; +NZ$103mn). By category, hospitality rose by 2.4% (+NZ$35mn), consumables by 1.8% (+NZ$49mn), durables by 1.3% (+NZ$21mn) and apparel by 1.9% (+NZ$6.4mn). Motor vehicles (excluding fuel) and fuel declined by 0.5% and 1.2%, respectively. Non-retail (excluding services) grew 2.1% (+NZ$47mn), while services fell 0.5% (-NZ$1.8mn) compared with January 2026.

China’s economy showed robust growth and a promising start to 2026. Chinese industrial output rose 6.3% YTD y/y (December 2025: 5.3% y/y), led by equipment manufacturing (+9.3% YTD y/y) and high-tech manufacturing (+13.1% YTD y/y). Services production grew 5.2% YTD y/y, driven by IT (10.1% YTD y/y), finance (7%), and transport (6.3%) sectors. Retail sales increased by 2.8% y/y, with online sales up 9.2%. Fixed asset investment rose 1.8% y/y, supported by an 11.4% increase in infrastructure investment, despite an 11.1% fall in real estate development. Urban unemployment remained stable at 5.3%. Overall, domestic demand, production and employment showed steady growth, reflecting effective macro policies and resource optimization. CSI 300 +0.052% to 4671.56, USDCNY -0.047% to 6.9005, 10y CGB +1.7bp to 1.844%.

Chinese real estate development investment totaled ¥961.2bn (-11.1% YTD y/y), with residential investment at ¥728.2bn (-10.7% YTD y/y), both contracting by less than in 2025. Construction area fell by 11.7% YTD y/y (residential -11.9% YTD y/y), new housing starts by 23.1% YTD y/y (residential: -23.3% YTD y/y) and completions by 27.9% (residential -26.9% YTD y/y). New commercial housing sales area declined by 13.5%, with the residential sales area down 15.9% YTD y/y. The sales value dropped 20.2% YTD y/y, including a 21.8% fall in residential sales. As of end-February, commercial housing inventory had risen by 0.1% y/y (residential inventories +1.3% y/y). Developer funds reached ¥1.305tn, down 16.5%, with notable decreases in domestic loans, self-raised funds, deposits and mortgage loans.

China’s February new home sales prices in 70 major cities saw a continued narrowing in m/m declines at -0.28% m/m, -3.46% y/y (January: -0.37% m/m, -3.33% y/y). New home prices in tier-1 cities stabilized, posting their first m/m gain since April 2025 (0.03% m/m vs. -0.3% in January), while the y/y measure remains down 2.18% y/y (January: -2.1% y/y). Prices in Beijing and Shanghai rose 0.2% m/m, while Shenzhen fell 0.3% m/m. Tier-2 and Tier-3 new home prices were down -0.23% m/m, -3.06% y/y and -0.37% m/m, -3.99% y/y, respectively. Used home prices also showed smaller m/m declines at -0.43% (January: -0.54% m/m) and steady or slightly larger y/y drops across city tiers.

Indonesia’s external debt (ULN), expressed in U.S. dollars, was $434.7bn in January 2026 (+1.7% y/y). Government ULN rose 5.6% y/y to $216.3bn, up from 5.5% in December, driven by foreign loans supporting government programs and foreign inflows into international government bonds. Key sectors funded include health and social services (22.0%), government administration and defense (20.3%), education (16.2%), construction (11.6%) and transportation (8.5%). Private sector ULN shrank to $193.0bn, a contraction of 0.7% y/y vs. 0.2% in December, mainly in nonfinancial corporations. Indonesia’s ULN-to-GDP ratio fell to 29.6% from 29.9%, with long-term debt dominating at 85.6%. JCI -1.841% to 7005.811, USDIDR +0.272% to 16990, 10y IDGB +11.1bp to 6.908%.

India’s Wholesale Price Index (WPI) for February 2026 rose 2.13% y/y from 1.81% in January. WPI increased by 0.25% m/m. Primary articles inflation rose to 3.27% y/y despite a -0.52% m/m decline, driven by lower food articles and minerals prices but higher prices for crude petroleum and non-food articles. Fuel and power inflation remained negative at -3.78% y/y but rose 1.17% m/m, led by mineral oils. Manufactured products inflation increased to 2.92% y/y with a 0.47% m/m rise, supported by textiles and chemicals. Food index inflation was 1.85% y/y, down m/m. SENSEX -0.02% to 74548.99, USDINR -0.041% to 92.42, 10y INGB +3.4bp to 6.714%.

India’s trade deficit widened to $27.1bn in February; this exceeded the $25.9bn estimate and was within economist forecasts that ranged from $31.5bn to $21.8bn. Goods exports declined by 0.8% y/y to $36.61bn, while imports surged 24.1% y/y to $63.71bn, driving the larger deficit, said the Directorate General of Commercial Intelligence and Statistics. In the services sector, exports were recorded at $39.53bn and imports at $16.38bn. The figures will likely deteriorate materially in the near future as import values rise sharply due to the current conflict. India remains extremely proactive in attempting to secure safe passage for its own shipments through the Gulf, not just for energy but also other key downstream products used in key areas of domestic production such as urea.