Is it too early for improved risk sentiment ?

Good morning

A surprising bout of improving risk sentiment pushed US and Asian equity markets up overnight, oil prices have dropped back below $100 and the US dollar has weakened enough to take it almost back to pre-Iran war levels.  GBPUSD is around 1.3525, EURUSD 1.1770, although USDJPY has failed to keep up with USD losses, still stuck in the low 159’s.  BoJs Ueda dented chances of a rise in Yen by playing down chances of a rate rise later this month, preferring to remain cautiously on the sidelines amid the uncertainty of the Middle East crisis.  AUD has struggled following very poor Aussie consumer confidence data overnight.

The lack of Iranian military response so far to the US blockade of Iranian ports has brought some relative optimism to the markets, as have reports that US and Iran may meet later this week for a second round of peace talks.  For now the blockade is in place and as such the risk of attacks from Iranian forces remains high, indeed Iran has moved to maximum combat alert, but I suppose the longer the ceasefire holds the better.  The risk of other countries such as China using their military ships to escort vessels through the Strait around the US blockade is possible which could bring far-reaching consequences.  The UK is reported to be leading a 40-nation coalition to keep the Strait open but I’m not sure whether this is a pure diplomatic or military set-up.

Adding to a bit of USD softness, Feds Miran was on the wires yesterday, saying he sees inflation back to target within a year, while Feds Goolsbee said he’s thinks that if oil doesn’t stay above $90 for too long the shock from the Middle East crisis could be well contained.  That’s quite a big ask though and leads me to think that this means the longer oil prices stay over $90, the deeper the impact is likely to be on overall prices.  Regardless, I stand by my idea that if inflation is driven by high energy prices rather than strong underlying demand, raising rates would have little effect other than to harm the economy.  Yet to see a sensible argument against this point.

Spurs premier league survival chances were dealt a blow yesterday evening as Leeds came away with a deserved win at Old Trafford, a result that surely surprised all but the most fanatical of Leeds fans.  I could go on about how Spurs have been unlucky with injuries and refereeing decisions, indeed I didn’t agree with some of the decisions in last nights match that piled the pressure onto Spurs, but that’s the joy of football I guess.  The win could be enough to keep Leeds safe and Spurs will need to pull something incredible out of the bag to get out of the mess they are in.

This evening brings the second leg of Liverpools champions league quarter final against PSG, Liverpool hoping to overturn PSG’s two goal advantage, while Barcelona will be hoping to overcome their two goal deficit to Spanish rivals Atletico Madrid.  Arsenal play tomorrow.

Today’s calendar is full of central bank speakers, with US PPI stuck somewhere in the middle.  Needless to say, most focus remains on Iran and this US naval blockade.

Have a great day…

-  09.50 BoEs Mann speaks

-  13.15 US ADP 4 week average

-  13.30 US PPI

-  13.30 RBNZs Breman speaks

-  15.00 BoEs Greene, ECBs Lane speak

-  16.00 ECBs Cipollone speaks

-  16.30 ECBs Lane speaks

-  17.05 BoEs Greene speaks

-  17.15 Feds Goolsbee speaks

-  17.45 Feds Barr speaks

-  18.00 Feds Paulson speaks

-  22.00 ECBs Lagarde speaks