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

Commodity-linked currencies not seeing uniform flow

^{Source: BNY}

The performance of commodity currencies over the past month has been mixed. For example, NOK heads into the country’s central bank decision tomorrow overheld but not seeing strong purchases. Despite being a “pure” energy-linked currency which is clearly benefiting from a positive terms-of-trade shock, this has not been fully reflected in flow, especially compared with some other traditional safety assets. Then again, having energy exposure is no guarantee of inflows, as the strongest performers are not considered fully fledged energy names.

BRL continues to lead flow, which is understandable given that it has a comprehensive mix of food, energy exports and high rates. Other currencies are sitting on higher nominal and real rate buffers, but some of these, such as ZAR and AUD, could face swift erosion. The recent selloff in silver prices has rendered PEN the worst-performing currency in this group, but we suspect that lower nominal rates in Peru compared with EM peers are also a factor. Such behavior matters for NOK as well, given that G10 nominal rates compare unfavorably with EM peers, which could be holding back interest in NOK. Conversely, its holdings score is not extreme relative to its commodity FX peers, so some rotation into oil-linked currencies could prove supportive.

What's Changed?

The risk sentiment rollercoaster returns, as oil prices drop and equities rally on the back of renewed hopes of talks between the U.S. and Iran. Bonds in Europe have rallied sharply, while USD is down and equities have jumped 1-2%, led by Asia. A 15-point plan details conditions for peace; the two sides are too far apart from any quick agreement to be reached, but the U.S. president’s will to make a deal matters more to market momentum. As investors consider getting off the war rollercoaster, the question of what will replace the current set of headlines in driving volatility becomes critical. Rotations in equities and a return to balancing fixed income and credit will likely follow, accompanied by policy guardrails – both monetary and fiscal – in the aftermath of the conflict.

• Central banks: ECB President Christine Lagarde has stated that the likelihood of a quick normalization from the energy supply shock is diminishing and that the central bank will not be paralyzed by hesitation in its response. The Chilean central bank kept its policy unchanged at 4.5%, citing oil over $100/barrel and risks to global inflation and growth. The minutes from the BoJ’s January meeting show ambivalence even before the war, with concerns about JPY and the need for more rate hikes.
• IPOs: The focus on AI and satellites is ongoing, and Spaces aims to file its IPO as early as this week, seeking to raise $75bn or more from the issue, with a 20% allocation for individuals. Also in the works is Stripe, a fintech giant in the payments space. In Hong Kong, the focus is on semiconductor component provider Epiworld International. The response to these deals will shed light on demand for tech shares and the balancing of growth against value within equities.
• Mapping oil and inflation: The talk and ceasefire hopes in the Iran conflict are dominating the energy markets, with three clear scenarios being priced: 1) fast, 2) slow and 3) escalation. The market bias is toward the first choice, but the other two outcomes are not impossible. API inventories for the U.S. last week show another 2.3 million barrels of crude build-up, from after 6.55 million barrels previously. The impact of extended oil and LNG supply disruptions on inflation and growth remains central to how investors reset for Q2 and beyond. Today’s economic data from the U.K. and last week’s U.S. data point to sticky service inflation risks pre-dating the conflict, adding to concerns that the pass-through of the shock will be hard on policy makers and consumers.

Bottom line: Getting off a rollercoaster is the point at which most people feel sick. The return to “normal” markets isn’t yet upon us, but traders are beginning to price in the change. The way in which markets handle new front-end supply in EU and U.S. bond markets will be a test of how queasy investors are about balancing stocks against fixed income. The key role of oil, with 80% actual volatility, remains critical for how all assets trade and likely makes the velocity of any shift in thinking about positions difficult to nail down. The hold-back-and-wait part of the war is shifting, and with it the definitions of safe havens. Investors will be watching USD and energy against EM FX and tech. 

What You Need to Know

Pakistani officials have said the U.S. has presented Iran with a 15-point proposal aimed at securing a ceasefire in the ongoing conflict. The plan reportedly includes sanctions relief, civilian nuclear cooperation, limits on Iran’s nuclear program, monitoring by the International Atomic Energy Agency, restrictions on missile activity and guarantees for shipping access through the Strait of Hormuz. The details were shared on condition of anonymity and have not been officially confirmed. Iran has denied that it is engaged in negotiations with Washington, and a military spokesperson dismissed the reported diplomatic effort, highlighting a disconnect between the proposal and Tehran’s public position. Brent -5.417% to 98.83, WTI -5.144% to 87.6, Omani -29.018% to 111.5, HH natural gas -1.428% to 2.901, Dutch TTF natural gas -8.357% to 49.525.

China’s state-owned COSCO Shipping Lines has announced the resumption of new container booking services from the Far East to several Middle Eastern countries, including the UAE, Saudi Arabia, Bahrain, Qatar, Kuwait and Iraq, effective immediately. The restart applies to standard containers but comes with caution, as ongoing geopolitical instability in the Middle East may lead to changes in booking arrangements and actual transport operations. The company has advised clients to confirm specific terms, costs and logistics with local agents or representatives. COSCO has also clarified that previously confirmed bookings remain unaffected, while stating it will continue to monitor regional developments and provide updates as conditions evolve.

ECB President Christine Lagarde has warned that the central bank will act decisively if the surge in energy costs from the Iran war risks triggering broader inflation, while stressing policy decisions will depend on clearer evidence of the shock’s size and persistence. She said the central bank remains vigilant but is not yet ready to act, although it is prepared to adjust policy at any meeting if needed. Lagarde outlined scenarios ranging from limited shocks requiring no response to persistent inflation requiring forceful tightening. ECB projections show inflation at 2.6% in the baseline scenario but up to 6.3% in a severe scenario. At the same time, rising energy costs also threaten growth, increasing risks of stronger price pass-through and renewed inflation pressures. Euro Stoxx 50 +1.59% to 5670, EURUSD -0.018% to 1.1606, BBG AGG Euro Government High Grade EUR +3.7bp to 3.347%.

China’s Commerce Ministry said it has concluded that Mexico’s trade measures targeting non-free trade partners, including China, constitute trade and investment barriers, following an investigation launched in September. The probe, conducted through questionnaires and on-site reviews, found that higher import tariffs and related restrictions have hindered Chinese goods, services and investment from entering the Mexican market, damaging the competitiveness of Chinese firms. The ministry noted that Mexico did not submit comments during the investigation. Based on the findings, China said it may take appropriate measures under its trade rules to safeguard domestic industry interests, signaling potential retaliation or policy responses against the identified restrictions. BMV IPC +2.18% to 65775, USDMXN -0.2% to 17.7102, 10y M-Bono -3.7bp to 9.264%.

The Danish parliamentary election produced an inconclusive outcome, with Prime Minister Mette Frederiksen’s Social Democrats losing support, as they took 84 seats with 21.9% of the vote vs. 27.5% in 2022. The Green Left party led by Pia Olsen Dyhr took 20 seats on an 11.59% share. Neither left nor right blocs secured a majority, positioning centrist Moderate party leader Lars Løkke Rasmussen as kingmaker. Frederiksen, who called the election early, remains ready to lead for a third term, emphasizing stability amid global unrest. The campaign focused on domestic issues such as the cost of living and pensions, with Greenland and President Trump’s Arctic ambitions playing a minor role. Coalition talks are expected, as no single party can govern alone. OMX COPENHAGEN 20 1.4% to 1385, EURDKK +0.003% to 7.4722, 10y DGB -5.7bp to 2.833%.

What We're Watching

U.S. February import price index forecast at 0.60% m/m, 0.40% y/y vs. 0.20% m/m, -0.10% y/y in January; while the import price index ex energy is seen unchanged at 0.40% m/m and the export price index is expected at 0.60% m/m, 2.5% y/y vs. 0.60% m/m, 2.60% y/y in January.

U.S. Q4 current account balance is expected to narrow to -$208.5bn vs. -$226.4bn.

Central bank speakers: The ECB’s Olli Rehn and Martin Kocher speak at the ECB and Its Watchers conference.

U.S. Treasury sells 17-week bills, $28bn in a 2y FRN reopening and $70bn in 5y notes.

What iFlow is Showing Us

Mood: iFlow Mood edged up slightly to -0.114. Equity flows were broadly flat, while demand for core sovereign bonds eased marginally.

FX: Within the G10, USD, CHF and JPY saw inflows, while EUR, NOK and CAD faced outflows. Elsewhere, flows were more dispersed, with notable buying in CLP, HUF and PHP, offset by significant selling in ILS, TRY, ZAR and SGD.

FI: Strong demand persisted across G10 sovereign bonds, led by the Eurozone, the U.K. and the U.S. APAC flows remained light, while LatAm saw better buying interest in contrast to continued selling in EMEA.

Equities: Flows were mixed with wide dispersion. The U.S., Switzerland, India and South Korea recorded significant outflows, while Poland, Singapore and Thailand saw strong inflows. Chinese equities returned to net buying after two weeks of selling. Within DM Americas, outflows were concentrated in consumer discretionary, staples, materials and energy, while industrials and financials attracted inflows.

Quotes of the Day

“Life’s a roller coaster, but I feel a change.” – Donny Most

“Life is a roller coaster; you have your ups and downs unless you fall off.” – John Updike

Economic Details

Germany’s business outlook has deteriorated, as the Ifo expectations index fell to 86 from 90.2, the lowest level in over a year. This reflects rising uncertainty linked to higher energy prices from the Iran war. The headline business climate index fell to 86.4 from 88.6 previously. While the current conditions gauge held steady, sentiment data suggest the country’s fragile recovery is at risk after only recently emerging from a prolonged downturn. The conflict is driving up costs and constraining supply, particularly in energy-intensive sectors such as chemicals, while also weighing on consumption as inflation broadens. Economists still expect modest growth of around 1% but are warning of significant downside risks, including potential interest rate hikes, as policymakers respond to renewed inflationary pressures. DAX +1.66% to 23014, EURUSD -0.018% to 1.1606, 10y Bund -6.4bp to 2.963%.

Spain’s services production rose 0.9% y/y in seasonally adjusted terms in January, slowing vs. December and signaling slackening momentum at the start of the year. On a m/m basis, output fell 0.9% after a 0.8% increase in December, showing a clear loss of pace. In unadjusted terms, the y/y rate was -0.6%. Within the breakdown, trade output increased by 0.6% y/y and other services rose 1.0% y/y. The release therefore pointed to still-positive adjusted annual growth, but softer underlying dynamics, with both the monthly contraction and negative original annual reading indicating that services activity weakened in January after a firmer end to 2025. IBEX 35 +1.3% to 17062, EURUSD -0.018% to 1.1606, 10y Bono -9.2bp to 3.469%.

Spanish industrial producer prices fell 7.0% y/y in February, a sharper decline than January’s -2.8% and the weakest reading since March 2024, while prices also dropped 3.1% m/m. The deterioration was driven mainly by energy, where annual price deflation deepened to -22.3% as electricity prices fell sharply and gas also contributed negatively. Intermediate goods inflation eased to 0.1% y/y, while non-durable consumer goods inflation edged up to 1.0% y/y. Excluding energy, industrial producer prices rose 0.8% y/y, only slightly below January’s 0.9%. The report therefore showed that headline producer price deflation intensified markedly in February, but that underlying price pressures outside energy remained modestly positive.

U.K. CPI rose 3.0% y/y in February, unchanged from January, while CPIH increased by 3.2% y/y, also steady. This indicates stable headline inflation despite underlying shifts in components. On a m/m basis, both CPI and CPIH rose 0.4%, matching the pace seen in February last year. Core measures showed modest firming, with core CPI rising to 3.2% y/y from 3.1% and core CPIH edging up to 3.4% from 3.3%. Within the breakdown, goods inflation was unchanged at 1.6% y/y across both measures, while services inflation eased slightly to 4.3% for CPI and 4.2% for CPIH. Clothing provided the largest upward contribution, while motor fuels exerted the main downward drag on inflation dynamics. The relevance of this figure is low, as it does not incorporate the latest energy price developments. FTSE 100 +1.04% to 10068, GBPUSD -0.015% to 1.3409, 10y gilt -9.1bp to 4.867%.

U.K. producer price inflation showed mixed dynamics in February: with input prices rose 0.5% y/y, up from a -0.4% decline in January, while output prices increased by 1.7% y/y, down from 2.5%, indicating easing pipeline price pressures. On a m/m basis, input prices rose 0.8% and output prices fell 0.5%, illustrating a divergence between cost pressures and factory gate pricing. The rebound in input inflation was driven by metals and non-metallic minerals (+4.2% y/y), while crude oil continued to exert a negative influence (-12.6% y/y). Output price growth was supported by food products (+2.4% y/y) but offset by falls in petroleum products (-8.6% y/y). Import prices rose 0.3% y/y.

U.K. inflation expectations surged in March, according to a YouGov/Citi survey, intensifying concerns at the BoE over persistent price pressures linked to the Middle East conflict. Short-term expectations jumped sharply to 5.4% from 3.3% in February, marking the highest level since 2023, while longer-term expectations rose to 4.5% from 3.6%. The increase follows a period of declining expectations and may complicate the Monetary Policy Committee’s outlook after its recent decision to hold rates steady. Policymakers have stated that further tightening could be required if energy-driven inflation persists, particularly given the U.K.’s sensitivity to imported gas and recent rises in government bond yields.

U.K. private rents rose 3.5% y/y in February, unchanged from January, with average monthly rents reaching £1,374. This indicates stable rental inflation at its joint-lowest rate since March 2022. By region, rents increased by 3.6% y/y in England, 5.5% in Wales and 2.4% in Scotland, while Northern Ireland recorded 5.2% growth in the 12 months to December. In England, rental inflation was highest in the North East at 7.6% and lowest in London at 1.7%. Meanwhile, house prices rose 1.3% y/y in January to £268,000, slowing from 1.9% previously, with growth easing across England, Wales and Scotland, while London prices fell 1.7% y/y, marking a continued divergence in regional housing market conditions.

Switzerland’s March UBS-CFA indicator fell sharply to -35.0 from +9.8 in February, signaling a shift to a strongly pessimistic outlook for the economy over the next six months. The decline was driven by a surge in negative expectations, with the share of pessimists rising to 45% while optimists dropped to 10%, reflecting a marked deterioration in sentiment linked to the Middle East crisis. Nearly half of respondents still expect no change in conditions. Inflation expectations also shifted significantly, with 55% of analysts now anticipating higher inflation, up from around 15%, driven by rising oil prices. While most expect oil to stabilize at $70-90 per barrel, upside risks remain elevated. SMI +1.57% to 12712, EURCHF +0.116% to 0.91594, 10y Swiss GB -5bp to 0.353%.

Sweden’s producer price index fell 1.7% y/y in February, narrowing from January’s -2.0%, while rising 0.2% m/m. This reflects continued monthly price increases despite persistent annual deflation. Domestic and import prices were both up 0.5% m/m, while export prices were flat. On a y/y basis, domestic prices rose 3.1%, but export and import prices were down 6.5% y/y and 5.3% y/y, respectively. Energy-related goods prices increased by 3.5% y/y, contrasting with falls for consumer goods (-3.6%) and capital goods (-2.7%). M/m gains were driven by electricity and refined petroleum products, alongside notable increases in coffee and tea prices (+10% m/m), while crude oil contributed to higher import prices, partially offset by declines in machinery. OMX +1.03% to 2938, EURSEK -0.051% to 10.7944, 10y Swedish GB -4bp to 2.865%.

Swedish economic confidence remained broadly stable in March, with the barometer indicator edging up to 99.9 from 99.7 in February, signaling a continued normal sentiment level across the economy. Business sentiment was largely unchanged, with manufacturing improving to 100.7 and construction strengthening further to 103.1, indicating above-normal conditions, while trade and services weakened to 102.0 and 101.2, respectively. In contrast, household confidence remained below average at 95.2 and deteriorated slightly, reflecting pessimism about the economic outlook and personal finances. Pricing expectations among firms were broadly normal, although retail price plans were notably subdued due to anticipated food price declines linked to a VAT cut, highlighting mixed demand and pricing dynamics.

Japan’s Economic Trend Index (CI) for January 2026 shows a continued stabilization in economic activity. The leading index rose to 112.1 (from 110.4 in December 2025), indicating improving future economic conditions. The coincident index climbed significantly to 117.9 (from 114.5), the highest level since May 2019, reflecting current economic strength. This was supported by a 4.3% m/m rise in industrial production and a 3.1% m/m increase in export volume. Overall, the data point to a bottoming-out of the economic downturn with positive momentum in production, exports and consumer sentiment. Nikkei +2.87% to 53750, USDJPY -0.17% to 158.96, 10y JGB -0.5bp to 2.261%.

Japan’s machine tool orders rose 24.2% y/y in February, slightly down from 25.3% in January. Domestic orders increased by 10.1% y/y, up from 2.0% in January, while foreign orders grew 29.8% y/y, down from 34.2%. M/m, total orders edged up 0.8% in February after an 8.2% decline in January. Notable sector gains included electrical machinery (+186.6% y/y) and steel/non-ferrous metals (+51.0% y/y), while shipbuilding and transport fell 46.8% y/y. The total order value reached ¥146.7bn in February, with foreign orders accounting for ¥109.6bn.

Australia’s Consumer Price Index (CPI) for February 2026 showed annual inflation at 0% m/m, 3.7% y/y, slightly down from 0.4% m/m, 3.8% y/y in January. The trimmed mean came in at 0.2% m/m, 3.3% y/y vs. 0.3% m/m, 3.3% in January. Key y/y inflation contributors were housing (+7.2%), food and non-alcoholic beverages (+3.1%) and recreation and culture (+4.1%). Goods inflation eased to 3.5% y/y (January: 3.8% y/y), led by a 37.0% rise in electricity, while automotive fuel fell 7.2%. Services inflation held at 3.9% y/y (January: 3.9% y/y), driven by domestic holiday travel and rents. Non-tradables inflation rose to 5.0%, tradables eased to 1.3%. ASX +0.58% to 5329, AUDUSD -0.015% to 0.6975, 10y ACGB -8.8bp to 4.956%.

New Zealand Chief Economist Paul Conway has explained that, despite lower inflation, many Kiwis still feel financially squeezed due to high prices that remain well above pre-pandemic levels. Since the pandemic, prices have risen about 26%, while wages have increased by 32%, resulting in only modest real wage gains. New Zealand’s prices are high by OECD standards, especially in construction and housing services. Conway emphasized that improving purchasing power requires not just low inflation via monetary policy but also stronger productivity growth through structural reforms to boost wages and living standards sustainably. NZX 50 +1.79% to 12929, NZDUSD -0.326% to 0.5816, 10y NZGB -11bp to 4.713%.

South Korea’s Consumer Tendency Survey for March 2026 shows the Composite Consumer Sentiment Index (CCSI) dropped sharply to 107.0 points vs. 112.1 in February, the lowest reading since May 2025. Sentiment regarding current living standards fell to 94 (-2), and the future outlook reading dropped to 97 (-4). Expectations for future household income declined to 101 (-2), while future household spending remained steady at 111. Views on current domestic economic conditions decreased to 86 (-9), and future conditions fell sharply to 89 (-13). The one-year and three-year-ahead expected inflation rate rose slightly to 2.7% (February: 2.6%) and 2.6% (February: 2.5%), respectively, while five-year expectations were unchanged at 2.5%. KOSPI +1.59% to 5642, USDKRW +0.077% to 1498.6, 10y KTB -4.7bp to 3.838%.

South Korean major retailers saw a 7.9% y/y increase in total sales in February, with offline sales up 14.1% and online sales rising 3.9%. Offline growth was driven by large supermarkets (+15.1%), department stores (+25.6%) and convenience stores (+4.0%), which benefited from Lunar New Year demand. Department stores and convenience stores have recorded eight consecutive months of growth, while large supermarkets returned to positive growth after four months. Online sales grew, mainly thanks to food (+17.4%) and cosmetics (+7.4%), despite falls in electronics and fashion. Sales composition was led by online channels (58.5%), followed by department stores (15.9%) and convenience stores (13.0%).

In China, the PBoC conducted a ¥500bn 1y medium-term lending facility (MLF) operation today, resulting in a modest net injection of ¥50bn against ¥450bn in maturing funds. This marks the smallest net injection since the PBoC shifted back to a net easing stance in March 2025. The reduced scale should not be interpreted as a tightening signal; rather, it reflects prevailing liquidity conditions in the system. The policy stance remains geared toward maintaining ample liquidity, particularly following the sizable ¥1tn of net injections delivered in January-February 2026. CSI 300 +1.37% to 4536, USDCNY -0.032% to 6.896, 10y CGB -1.2bp to 1.825%.