The Iran ceasefire has shifted the focus back to the economy, with the Federal Reserve and European Central Bank (ECB) in the spotlight. The war's impact on the economy has been significant, but the recent ceasefire brings a new perspective. The real economy is now taking center stage, with the PCE report and CPI figures set to be closely watched.
One of the most notable developments is the 19% decline in WTI crude oil prices, a substantial retracement in inflation. This is a significant relief for the Federal Reserve, as the energy price spike is now time-limited. The 2-year yield has touched its lowest point since March 18, but it's still a long way from the 3.4% pre-war zone. The challenge remains in getting oil prices back to $60, which will be a difficult feat.
The market is now pricing in 10.5 basis points of easing this year, with a 42% chance of a cut. This is a significant shift from last week, when the chances were virtually nil. The April 29 and June 17 meetings are the last two with Jerome Powell as Chairman, and the market is closely watching these events.
In Europe, the odds of a rate hike at the April 30 meeting have decreased to 31.5%, while the June and September meetings now carry a higher risk of a hike, at 71.9% and 91% respectively. This shift in odds reflects the changing economic landscape and the impact of the Iran ceasefire.
The ceasefire has brought a new dynamic to the economic outlook, and the Federal Reserve and ECB are now in a better position to navigate the post-war economy. The market's response to the ceasefire is a clear indication of the economic challenges that lie ahead, and the central banks' role in managing these challenges will be crucial.
