Key Highlights

• President Trump tells aides to prepare for extended Iran blockade and warns country it had “better get smart soon.”
• U.S. Treasury warns of sanctions against banks that facilitate private Chinese refineries’ access to Iranian oil.
• Bank of Thailand holds rates at 1.0% despite recent FX stress.

Chart of the Day

USD and USD cash equivalent demand generally strengthening pre-FOMC meeting

^{Source: BNY}

The dollar is heading into the FOMC decision on a good footing, having just registered its first five-day net purchase streak over the past three months. However, April has not been a good environment for the currency: risk appetite has recovered, unwinding some of the strong dollar demand that was observed during the most intense phases of the conflict. We do not see a material change in the decision itself, and the Fed will view the dollar as a major factor in current policy; given the inflation risk in place, however, it may be preferable to limit downside risk with a dovish lean amid the current global supply pressures. Conversely, hikes elsewhere could be policy error, and this is also limiting downside risk to the dollar from rate differentials alone.

Using USD cash and short-term instruments (CAST) as an alternative proxy for USD demand, we also observe an acceleration in demand as the Fed decision approaches. There could be a case for money market investors to capture higher yields in the near term, but the overall balance has clearly been in favor of net inflows throughout the last three months, and the rolling average is lightly positive. Flows have been more mixed since March, but we highlight that there will be a lot of USD CAST on the sidelines that could be rotated back into underlying assets. U.S. Treasurys have performed very well on this level, led by domestic flows, but it remains to be seen if equities can benefit as well. Cross-border flows are lighter given the need to spend dollar liquidity to pay for imports, but there is a sufficiently large onshore offset.

What's Changed?

Markets have returned to risk-off sentiment as they await decisions from the Fed and BoC today, along with big tech earnings releases. While consensus forecasts are that both central banks will decide to hold rates unchanged, worries over their guidance will be influential. The overnight moves in markets delivered higher oil prices, as the impasse over the Strait of Hormuz continues. USD is higher while stocks are mixed to lower, with bond yields higher. Industrial metals were higher, with nickel at a three-month high along with silicon. Rare earth stocks are a key area of focus, with China again warning on production controls.

• Oil and Iran: The effect of the war on the Iranian leadership continues to slow potential talks to end the blockades of the strait. The delays and entrenched positions of the U.S. and Iran make it clear that global oil supplies will be constrained for an extended period. The World Bank has released its Commodity Market Outlook, warning of May spikes in key industrial commodities alongside oil. President Trump has met with oil and gas company bosses to discuss the ongoing stalemate with Iran. The continuing supply chain shifts and disruptions will keep up the pressure on markets throughout Q2.
• Central banks: Market expectations are being guided by high uncertainty and meeting-by-meeting risks. Comments by RBNZ Governor Anna Breman were hawkish, warning of signs that short-term inflation is feeding into more persistent pressures in the economy. Overnight, the Banco Central de Chile left rates at 4.5% in unanimous decision, voicing concerns over inflation. It warned that the Iran conflict “has unfolded more adversely” than anticipated. The Bank of Thailand also kept rates at 1% in a unanimous vote, ending its easing cycle after two consecutive cuts. It sees inflation holding over 3% for Q2, and potentially as high as 5%, but growth slowing to 1.5% or in a worst-case scenario below 1%. It considers policy to be appropriate, noting that it was “lucky” to cut in February before the conflict began. NZD and THB lost ground overnight, while CLP is expected to open higher thanks to commodity prices.
• Confidence and inflation: The shock of the war feeding through to demand destruction risk is in evidence. Italian April consumer confidence fell 1.8 points to 90.8, which is a three-year low. The drop in economic sentiment was larger, at -2.1 points to 95.2, while manufacturing sentiment fell 0.8 points to 87.9, signaling contraction. Both German and Spanish flash inflation came in slightly lower than feared today: the figure for Spain is 3.2% from 3.4% y/y, while German state data suggest a rate of 2.8% y/y. That is up from 2.7% but below 3% y/y, despite a 26% rise in fuel prices and 1.9% rise for food. Key drivers were a drop in electricity prices due to government subsidies, lower package holiday inflation and base effects from the timing of Easter.

Bottom line: The fog of war is heavier today, and investors are likely to get a mood check after the BoC and Fed decisions on rates. However, the bigger risk comes after the close, when big tech earnings will test the AI investment narrative. The correlation of stocks to bonds to USD remains linked to oil, so perhaps nothing besides vessel traffic through the strait will make a difference. Evidence of return on investment will be required to steady the markets as the momentum factors of April fade into the usual seasonal dread of “selling in May and going away.” There is also the lightness of Asian markets next week and the rising expectation that the supply chain squeeze will start to matter. Consumer and corporate resilience is showing some cracks globally, and the focus today will be on whether the U.S. is exempt from such moodiness.

What You Need to Know

The U.S. Treasury has warned financial institutions of sanctions risks linked to Chinese “teapot” refineries processing Iranian oil, which account for most of China’s imports of Iranian crude (about 90%). These refineries, mainly in Shandong province, have used the U.S. financial system for dollar transactions, benefiting Iran’s regime and military. The Treasury has urged enhanced due diligence on related transactions and sanctioned several refineries and associated logistics providers. Iranian oil is often transported via sanctioned vessels using deceptive practices, including blending and relabeling. This move precedes a planned visit by President Trump to Beijing amid the ongoing U.S.-Iran conflict. S&P Mini +0.04% to 7174, DXY +0.097% to 98.735, 10y UST +1.2bp to 4.357%.

In Australia, New South Wales has approved new gas exploration areas for the first time in over a decade to address energy security concerns on the populous East Coast. Two regions, Bancannia Trough and Pondie Range Trough, will open for prospecting, with exploration license fees reduced from AU$50,000 to AU$1,000 to encourage interest. The move aims to mitigate supply risks amid rapidly depleting East Coast gas fields, with additional supply needed from 2030. Projects will still require planning and environmental approvals. About 40% of NSW’s gas demand is industrial, and gas remains key for grid stability alongside renewables. ASX -0.5% to 5511, AUDUSD -0.084% to 0.7159, 10y ACGB -3.1bp to 4.995%.

The U.K. faces rising recession risks if the Iran conflict escalates, with the National Institute of Economic and Social Research warning that renewed hostilities and a prolonged closure of the Strait of Hormuz could trigger a severe economic shock. Under this adverse scenario, oil prices could surge to around $140/barrel, pushing U.K. inflation above 5% and forcing the Bank of England to raise interest rates by up to 150bp, reversing recent easing. The U.K. economy is seen as particularly vulnerable given its reliance on energy imports. Even under a benign scenario with a sustained ceasefire, growth forecasts have been downgraded, while inflation is expected to remain elevated before gradually returning to target. FTSE 100 -0.57% to 10274, GBPUSD +0.134% to 1.3502, 10y gilt +0.6bp to 5.012%.

The Bank of Thailand has kept its policy rate steady at 1.0% in a unanimous decision, maintaining a neutral stance. It thinks the current policy rate remains at an appropriate level to support economic recovery. The central bank removed previous concerns about THB depreciation, signaling acceptance of the weaker currency. Growth forecasts for 2026 remain at 1.5%, driven by investment, while the 2027 GDP forecast was lowered to 2.0% from 2.3%. Inflation projections were sharply revised up, with headline CPI at 2.9% (2026) and 1.5% (2027) and core CPI at 1.6% and 1.5%, respectively. Risks are skewed toward weaker growth and higher inflation, with inflation expected to exceed 3% temporarily in 2026. SET +0.72% to 1491, USDTHB -0.454% to 32.653, 10y TGN +0.5bp to 2.143%.

S&P has reaffirmed South Korea’s sovereign ratings at Aa with a stable outlook, highlighting resilience in the country’s economic fundamentals despite external risks. The agency expects growth to remain stronger than in most high-income economies over the coming years, supported by the electronics sector and fiscal policy, even as global energy market disruptions pose headwinds. Moderate fiscal deficits are projected to keep debt dynamics stable. Geopolitical risks relating to North Korea continue to cap the rating, although recent developments are not seen as materially increasing the likelihood of a major economic or security shock. We still see the currency as cheaply valued relative to such fundamentals. KOSPI +0.75% to 6691, USDKRW +0.445% to 1479.4, 10y KTB +4.5bp to 3.865%.

What We're Watching

U.S. FOMC rate decision: the Fed is expected to keep rates on hold at 3.75%, with the focus on Chair Jerome Powell and the press conference at 2.30pm ET.

Bank of Canada rate decision: the BoC is expected to keep rates unchanged at 2.25%.

U.S. March retail inventories forecast at 0.1% vs. 0.2% m/m.

U.S. March preliminary building permits forecast to rise to 1.390 million vs. 1.376 million in January, while housing starts are expected to ease -0.4% m/m to 1.380 million vs. +7.2% to 1.487 million in January.

U.S. March advance goods trade balance forecast to narrow to a $88bn deficit vs. a $83.5bn deficit, as goods imports are expected at -1.0% from 5.1% m/m, while goods exports are expected at -1.6% vs. 5.9% m/m.

U.S. March preliminary wholesale inventories forecast to ease to 0.4% m/m vs. 0.8% m/m.

U.S. March preliminary durable goods orders are expected to rise to 0.5% m/m vs. -1.3% m/m, with durable goods ex transportation forecast to ease to 0.4% m/m vs. 0.9% m/m and capital goods orders non-defense ex air expected to ease to 0.5% m/m vs. 0.7% m/m, while capital goods shipments non-defense ex air are expected to ease to 0.6% m/m vs. 1.0% m/m.

U.S. Treasury sells $69bn in 17-week bills.

What iFlow is Showing Us

Mood: iFlow Mood has eased further to 0.131, driven by stronger buying in core sovereign bonds (0.130), while equity demand remained firm (0.261).

FX: APAC currencies saw broad inflows, except for CNY and IDR, while EMEA and LatAm were biased toward outflows. Within the G10, USD, CAD and CHF recorded moderate inflows, offset by outflows in NOK and NZD.

FI: Solid demand for major sovereign bonds, including Eurozone and Japanese government bonds, U.K. gilts and U.S. Treasurys, contrasted with selling in Australia, China, Hungary and Colombia.

Equities: Strong inflow momentum persisted in LatAm and Chinese equities, while the rest saw moderate outflows, notably in Switzerland, Hungary and the Philippines. In DM, industrials and healthcare sectors faced selling, while the IT, energy, and financials sectors attracted strong buying.

Quotes of the Day

“The trick is to be grateful when your mood is high and graceful when it is low.” – Richard Carlson

“There are good and bad times, but our mood changes more often than our fortune.” – Thomas Carlyle

Economic Details

EU economic sentiment deteriorated sharply in April. The Economic Sentiment Indicator fell to 93.5 in the EU and 93.0 in the euro area, both moving further below the long-term average, while employment expectations also decreased significantly. The downturn was driven by weaker confidence among consumers and the services and retail sectors, while industry and construction remained broadly stable. At the same time, selling price expectations surged across all sectors and consumer inflation expectations rose markedly, signaling persistent price pressures. Economic uncertainty increased significantly, reaching its highest level in over a year; this reflects more cautious business and household outlooks amid weakening sentiment. Euro Stoxx 50 -0.31% to 5818, EURUSD +0.06% to 1.17, BBG AGG Euro Government High Grade EUR +3.4bp to 3.316%.

Euro area money supply strengthened slightly in March, with M3 growth rising to 3.2% y/y from 3.0% in February, supported by stronger contributions from marketable instruments and credit flows. Narrow money growth slowed slightly, with M1 easing to 4.6%, while short-term deposits shrank marginally. Credit dynamics improved, as loans to non-financial corporations accelerated to 3.2%, while household lending remained stable at 3.0%, pointing to steady but uneven credit demand. Deposit growth diverged across sectors, with household deposits slowing and corporate deposits picking up. Overall, the data indicate gradual monetary expansion alongside a mild recovery in credit momentum across the euro area.

Italian confidence indicators in April declined across both households and firms, with consumer confidence falling to 90.8 from 92.6 and the composite business confidence index dropping to 95.2 from 97.3, signaling a broad-based deterioration in sentiment. Among consumers, all components weakened, particularly views on the national economic outlook, while expectations and current conditions also softened. Business confidence deteriorated most sharply in market services and construction, with significant weakness in tourism, while manufacturing sentiment edged lower. In contrast, retail trade showed a slight improvement, driven by stronger assessments of current sales despite weaker expectations. Overall, the data point to a generalized loss of confidence across the Italian economy, with only limited pockets of resilience. FTSE MIB -0.44% to 47827, EURUSD +0.06% to 1.17, 10y BTP +2.3bp to 3.909%.

Italian contractual wages increased modestly in March: the hourly wage index rose 0.1% m/m and 2.4% y/y, while average wages grew 2.6% y/y in Q1. The pace of wage growth remained below 3% for a third consecutive quarter, indicating a gradual slowdown, although still exceeding inflation. Public sector wages showed stronger y/y gains at 3.2%, compared with 2.3% in both industry and private services. Contract renewal dynamics improved, with the average waiting time for expired agreements falling significantly, while the share of private sector workers with expired contracts fell to just over one in ten, reflecting progress in wage negotiations.

Swiss economic expectations remained weak in April, with the UBS CFA indicator improving slightly to -30.3 from -35.0 in March but still signaling subdued sentiment. Analysts broadly expect little change in economic activity over the next six months, although inflation concerns have increased, partly reflecting geopolitical tensions in the Middle East. The survey indicates a continued imbalance between pessimists and optimists, with a large share expecting stable conditions rather than a recovery. The SNB’s monetary policy is widely viewed as appropriate and likely to remain so in the coming months, while expectations of further appreciation by the Swiss franc against both the euro and the U.S. dollar persist. SMI -0.45% to 13089, EURCHF -0.049% to 0.92395, 10y Swiss GB -0.3bp to 0.441%.

Spanish inflation for April is estimated at 3.2% y/y, according to the flash CPI release, easing by 0.2 percentage points from March, while core inflation also moderated slightly to 2.8%. The m/m increase in consumer prices was 0.4%, indicating a modest sequential pickup. The deceleration in headline inflation was primarily driven by lower electricity prices and more moderate increases in package holidays compared with a year earlier, although higher fuel costs provided some upward pressure. Meanwhile, the harmonized measure of inflation allowing for comparison across Europe rose to 3.5% y/y, with a m/m gain of 0.7%, suggesting slightly firmer dynamics. IBEX 35 -0.81% to 17600, EURUSD +0.06% to 1.17, 10y Bono +1.4bp to 3.543%.

Swedish GDP grew by 1.9% m/m in March (seasonally adjusted), rebounding after contractions in January and February and returning activity to levels seen late last year. On a calendar-adjusted basis, GDP rose by 2.5% y/y in March, while Q1 GDP fell 0.2% q/q but grew 1.6% compared with the same period in 2025. The preliminary GDP indicator, based on partial data, showed stronger underlying signals before reconciliation, with annual growth estimates of 3.1% from the use side and 4.8% from the production side, yielding a balanced outcome of 4.0% for March. OMX -0.59% to 3038, EURSEK -0.074% to 10.8468, 10y Swedish GB +0.5bp to 2.898%.

Sweden’s retail trade volume increased by 3.1% y/y in calendar-adjusted, seasonally adjusted terms in March, reflecting broad-based gains across both durables and consumables, which rose by 3.0% and 3.1%, respectively. On a calendar-adjusted basis, annual growth was stronger at 6.2%, with durables up 9.0% and consumables rising 3.3%. In non-adjusted constant price terms, retail volumes climbed 7.9% compared with a year earlier. On a sequential basis, retail trade volumes rose modestly by 0.4% in the January-March period relative to the prior three months. In nominal terms, turnover increased by 7.6% y/y, indicating continued support from both price effects and underlying demand.

Swedish employment increased by 0.8% y/y in February, with the number of ongoing employments reaching 5.32 million, indicating continued resilience in the labor market. However, total hours worked declined by 1.2% over the same period to 630 million hours, suggesting softer labor utilization despite higher employment levels. The composition of jobs showed 4.23 million positions lasting longer than six months and 1.09 million shorter-term roles. Wage dynamics remained firm, with total gross pay rising by 4.1% y/y to SEK 201bn, pointing to ongoing nominal income growth. Meanwhile, sickness absence stood at 2.6% overall, with a higher rate among women than men, highlighting persistent labor supply frictions.

Swedish economic sentiment remained broadly stable in April but with a growing divergence between businesses and households. The overall barometer indicator edged down to 99.0, still consistent with a normal level. Business sector confidence remained around historical averages, with manufacturing and services broadly unchanged, while construction weakened slightly but still signaled normal conditions. Retail trade stood out positively, with confidence rising and firms reporting stronger price plans, indicating continued pricing pressure. Across sectors, companies expect higher selling prices, particularly in manufacturing and retail. In contrast, household confidence deteriorated further, falling well below normal levels on weaker views on the Swedish economy and personal finances. This highlights persistent fragility in consumer sentiment.

Norwegian retail trade volumes declined by 0.1% m/m in March in seasonally adjusted terms, extending February’s 1.1% fall and leaving Q1 volumes unchanged compared with the previous quarter. The weakness was driven by declines in broad assortment retailing, including groceries, which fell 1.9%, alongside a sharp 8.8% drop in fuel sales, partly reflecting higher fuel prices and seasonal effects around Easter. In contrast, specialized retail segments such as clothing and pharmacies rose by 2.9%. Across total trade, including wholesale and motor vehicles, volumes increased by 2.4% in March, supported by strong car sales, although Q1 total trade still edged down by 0.1% overall. OSE +0.52% to 2004, EURNOK -0.119% to 10.8915, 10y NGB +2.6bp to 4.457%.

Turkish unemployment fell to 8.1% on a seasonally adjusted basis in March, down 0.3 percentage points from the previous month, as the unemployment count shrank by 96k to 2.87 million. Employment conditions improved, with total employment rising by 226k to 32.43 million and the employment rate increasing to 48.5%, while the labor force participation rate edged up to 52.8%. Youth unemployment also dropped to 15.3%, although it remains elevated, particularly among women. However, broader labor underutilization worsened, with the composite slack rate rising to 31.5%, highlighting persistent structural weaknesses despite improvements in headline indicators. BI 100 +0.77% to 14440, USDTRY -0.035% to 45.0704, 10y TGB +10bp to 34.03%.

Turkish economic confidence declined to 96.4 in April, down 1.5% from March, indicating a deterioration in overall sentiment and remaining below the neutral 100-point threshold. The weakening was driven by declines across most business sectors, with the manufacturing confidence index falling by 1.4% to 98.6, services by 3.1% to 109.7 and retail trade by 1.8% to 111.6. In contrast, consumer confidence rose by a modest 0.5% to 85.5 points, while construction sentiment increased by 3.6% to 83.6, partially offsetting broader weakness. Overall, the data point to softer business expectations despite some resilience in household sentiment and construction activity, suggesting uneven momentum across the economy.

Australia’s Consumer Price Index (CPI) rose 4.6% y/y in March from 3.7% in February and was up 1.1% m/m. Key contributors to annual inflation were housing (+6.5%), transport (+8.9%) and food and non-alcoholic beverages (+3.1%). Trimmed mean inflation remained steady at 3.3% y/y. Automotive fuel prices surged 24.2% y/y and 32.8% m/m, driving goods inflation to 5.5% y/y (up from 3.5%). Services inflation eased to 3.6% y/y, led by rents (+3.7%) and medical services (+3.8%). Tradables inflation rose to 4.5% y/y, while non-tradables eased to 4.6% y/y. The release supports expectations of ongoing RBA tightening and its status as one of the more assertive G10 central banks. ASX -0.5% to 5511, AUDUSD -0.084% to 0.7159, 10y ACGB -3.1bp to 4.995%.

New residential mortgage lending in New Zealand surged 43% y/y in March to NZ$9.5bn –the second-highest reading since 2014, with a 2.6% m/m increase after seasonal adjustment (February: NZ$6.6bn). Approximately 60% of lending was for property purchases, 23% for loan provider changes and 12% for top-ups. First home buyer lending rose by 19% y/y to NZ$1.99bn (21% of total), owner-occupier lending by 12% y/y to NZ$5.49bn and investor lending by 6.1% y/y to NZ$1.89bn. Total new mortgage commitments reached 23,928. The data add to the policy unease which is pushing RBNZ toward tightening, as the loan growth does not support some of the cyclical arguments against a move. NZX 50 +0.05% to 12770, NZDUSD -0.256% to 0.5864, 10y NZGB -0.3bp to 4.702%.

RBNZ Governor Anna Breman has highlighted global economic headwinds, including supply chain disruptions from the Middle East conflict, which have pushed up fuel and fertilizer prices. New Zealand’s annual CPI inflation was 3.1% y/y in Q1, driven mainly by fuel, while core inflation was stable within the target range. The MPC held the OCR at 2.25% on April 8, balancing inflation risks and economic recovery. The RBNZ remains vigilant and ready to act to ensure inflation returns to 2% over the medium term. Elsewhere, in the country’s latest Treasury Economic Update for the March quarter, annual CPI inflation held steady at 3.1%, with limited initial impacts from higher fuel prices. However, inflation is expected to rise in the June quarter as fuel cost increases flow through the economy. Activity indicators suggest a loss of momentum heading into the June quarter, with business surveys showing reduced confidence and fuel spending crowding out discretionary spending. The labor market remains slack, and while soft demand may cushion inflationary pressures it leaves the economy in a fragile spot and vulnerable to real income and profit shocks. Meanwhile, the IMF has downgraded its global outlook amid ongoing Middle East volatility and disrupted oil supply.

China is intensifying regulatory efforts to eliminate “zombie companies,” with authorities launching a pilot program across Beijing and six provinces to enforce the exit of unprofitable firms sustained by subsidies or bank lending. Enabled by revisions to the Company Law, regulators can now petition courts to compel liquidation if firms fail to voluntarily close, marking a more forceful approach to tackling industrial overcapacity and local protectionism. The initiative targets inefficiencies linked to excessive competition and misallocation of resources, particularly evident in sectors such as renewables. While the program is expected to improve market exit mechanisms and remove smaller dormant firms, its near-term impact may be constrained as larger or state-linked entities are likely to continue receiving official support. CSI 300 +1.1% to 4810, USDCNY +0.069% to 6.8329, 10y CGB -1.5bp to 1.745%.

The Central Bank of Chile held its monetary policy rate at 4.5% in a unanimous vote. The international environment remains uncertain due to the Middle East conflict, which has driven up inflation risks via higher oil and commodity prices. February’s non-mining Imacec economic activity index contracted by 0.3% y/y (-0.3% m/m), undershooting expectations, mainly due to supply-side issues. Private consumption aligned with forecasts, while investment slowed more than anticipated. March CPI rose 2.8% y/y, driven by volatile prices excluding energy; core inflation was 3.4% y/y. Inflation expectations remain around 3%. The bank emphasized ongoing uncertainty and will adjust policy as needed to keep inflation near 3% over a two-year horizon. CSM Select -2.02% to 10905, USDCLP +0.683% to 889.08, 10y CGB +2bp to 5.52%.