In focus today and over the weekend
The prospect of talks between the US and Iran over the weekend to reach an agreement will be in focus, as a ceasefire was reached between Israel and Lebanon yesterday. We expect that the two sides will agree to extend the temporary ceasefire, while reaching a permanent peace agreement will take more time.
Early Monday morning, China will announce its 1-year and 5-year loan base rates (LPR). While we expect monetary policy to ease in the coming months, we look forward to the LPR not changing this time. LPR rates usually only change after changes in the 7-day reverse repo rate, which has not been revised since May of last year.
Economic and market news
What happened yesterday?
In the Eurozone, final CPI inflation data was slightly higher than the flash release with the headline at 2.6% y/y compared to 2.5% y/y in the flash, mainly due to rounding. Core inflation confirmed the rapid release of 2.3% y/y. The rise in inflation is due to higher energy-related expenditures. Hence, the data does not change the picture compared to the quick release and separately supports stability in April, although future inflation readings will be more important for the ECB than in March.
Moreover, a story by ECB sources revealed that the Governing Council is leaning towards keeping interest rates unchanged in April, as it is too early to pass judgment on the consequences of the war with Iran. Schnabel also stated that the ECB could devote some time to analyzing the shock and that it did not want to impose unnecessary costs on the economy. This has reduced the likelihood of a rate hike in April with markets pricing in a 5 basis point rate hike. We have revised the ECB’s call and now expect a rate hike in June and July.
In the Middle East, US President Trump said last night that Israel and Lebanon had agreed to a 10-day ceasefire that would take effect at 23:00 Central European Time yesterday. Israeli Prime Minister Netanyahu confirmed the ceasefire. But he also said that the truce would not include the withdrawal of forces from Lebanon. Hezbollah, which did not participate in the talks, responded that the presence of Israeli forces on Lebanese territory gave Lebanon and its people “the right to resist.” Hezbollah claimed this morning that Israel violated the overnight ceasefire by firing on cities in the south. The fragile ceasefire between Israel and Lebanon removes a major obstacle to US-Iranian talks. However, a number of issues remain, not least the Iranian nuclear program and control of the Strait of Hormuz. We expect the ceasefire to be extended over the weekend, but as European and Gulf officials warned yesterday, we believe a more permanent agreement will take months.
In the UK, February GDP growth was much stronger than expected with GDP rising 0.5% m/m in February 2026 (cons: 0.1% m/m) after a disappointing pause in January. Services are still largely driving progress, but automobile production is also back on track. The strong growth in February aligns well with the strong PMIs we saw in January and February, however, March PMIs pointed to a recession. From what we know so far, prices have not affected wage growth. We’ll know more next week when we get a new labor market report. This will be key to the Bank of England’s outlook, as we expect them to hold interest rates for the foreseeable future.
In the US, industrial production fell by -0.5% m/m (February: +0.2% m/m, negatives: +0.1% m/m), the largest decline since September 2024, however, it rose by +0.7% m/m. Manufacturing output, which makes up about 78% of industrial production, fell by -0.1% m/m in March (February: +0.4% m/m, negatives: +0.1% m/m), a negative after showing signs of recovery at the start of the year after tariffs hit manufacturing hard in 2025.
In Sweden, Per Jansson, of the Riksbank, said that cutting the value-added tax on food was putting downward pressure on inflation, while rising energy costs were pushing inflation higher. He therefore noted that this supply shock can largely be overcome, although vigilance is still necessary. He added that the situation is still different from 2022 as inflation pressure is now lower, demand is weaker and the Swedish krona is stronger.
Stock: Stocks were higher, driven by the tech-heavy United States and Asia. The S&P 500 rose a meager 0.2%, which was enough to reach a new all-time high. But what was interesting was the rotation below. While the technology, communications and real estate sectors rose by more than 1%, value sectors such as industrials and banks fell by 0.5%. Software has continued to outperform recently, rising over 2% and 13% full week to date. Value indices performed well yesterday, with the energy sector rising significantly. However, the story last week was growth, not about cyclical versus defensive stocks per se.
FI and FX: Treasury yields rose throughout the US session leaving the 10-year US dollar at 4.32% this morning as the price of oil also rose slightly with Brent crude trading at US$98 per barrel. Fed member Miran, a dovish approach within the Federal Open Market Committee, trimmed his forecast from four to three cuts this year. The market is priced at c. 10bp of discounts. Among the major currencies, EUR/USD settled overnight just below 1.18 while USD/JPY hovered around 159. EUR/NOK continues its decline towards 11.00, after starting the week near 11.20. Meanwhile, the EUR/SEK pair is stable at 10.80 at the moment. As a result, NOK/SEK returned above 0.98. EUR/DKK is stuck near the 7.4732 level.
Later this morning, we will publish our monthly currency market forecast update, this time titled “US Dollar Erases War-Fueled Gains as Downtrend Resumes,” on April 17. Over the past month, the EUR/USD pair has regained its war-related move lower, and is now trading around the 1.18 level. In summary, we have revised our 1.3 million EUR/USD forecast to 1.18 and thus look for the pair to remain around the current level in the short term. Longer term, we expect EUR/USD to rise, driven by three main factors: a decline in debt with the expected ECB increases and Fed cuts this year, normalization of oil prices, and relatively high inflation in the US. For EUR/SEK, we left our forecast unchanged, and expect EUR/SEK to reach 11.00 in 6-12 months. For EUR/NOK, we remain skeptical regarding the longevity of the rally and therefore leave our forecasts unchanged this month while maintaining an upward slope in 6 months and 12 months. For the rest of our forecasts please see the full piece.
