FRANKFURT – The Iran war is now front and centre in the minds of investors, who have turned overwhelmingly pessimistic about Europe’s largest economy.

Germany’s ZEW thinktank said Tuesday that the March expectations indicator for the coming half-year had “collapsed” to -0.5 points, a dizzying drop from 58.3 last month and far below the market expectation of 39.2.

The measure hit 59.6 in January, the best showing since July 2021, but now it has fallen to its lowest mark since April of last year, when it plummeted on US tariff threats.

(Continue Reading – LS)

In our updated scenarios we see oil prices remaining elevated for longer in our base case, which could eventually weigh on growth and thus rates. In a tail risk scenario whereby the full supply disruption lasts until May, we even pencil in an ECB hike. But also, in this scenario, we end the year with lower rates

As a consequence of the war to date, we are getting a feed of higher nominal yields, higher real yields and higher inflation breakevens. The 2yr breakeven inflation expectation is now at 3.2%. That’s a market average in the coming two years. At the same time, longer tenor real yields are mostly higher since the war broke, which is in fact a sign of resilience. The profile ahead is prone to feature higher longer tenor market rates, with the 10yr nominal yield getting to the 4.25% to 4.5% range (now 4.2%), on elevated inflation expectations.

(Continue Reading – Think.Ing)

When the U.S. started firing Tomahawk missiles at Iran late last month, many of President Donald Trump’s allies hoped it would be a quick, surgical operation, similar to last year’s strike against Iran’s nuclear facilities or the ouster of Venezuelan dictator Nicolás Maduro in January.

Though uneasy, they were reassured by the belief that Trump’s open-ended objectives gave him the flexibility to declare victory whenever he saw fit.

(Continue Reading – Politico)