•Meanwhile in markets, while we’re waiting for the latest White House leaks or Trump tweets, the silence of the ECB doves is deafening. We’re now four weeks into the war, and the pushback against market rate hike pricing isn’t even feeble – it’s non-existent;

•Bellwether on the ECB Governing Council, vice President De Guindos and his successor at the Board, Croatian central bank chief Vujcic, have bot guided for a hike in April. Vujcic is still hedging his bets – a hail Mary that the war ends soon. But that’s also assuming that an accord between the US and Israel with Iran is lasting;

•This morning’s Eurozone PMI for March has given the doves some firepower, though it remains to be seen if they will use it. Eurozone private sector output growth fell to a ten-month low because of the war. And the details were equally worrisome. Activity in the services sector stagnated, which could not be offset by stronger but still moderate growth in manufacturing. New orders fell, as did employment levels and business sentiment. On the price side of things, input prices rose at their fastest pace since late 2022 though output prices – while rising at a marked clip – was still relatively moderate. Supply chain bottlenecks are popping up, meaning that more upward price pressures lie in store. Stagflation yes, but firms’ margins are squeezed, and workers’ bargaining power is on the wane. This is not 2022, when pricing power was much, much stronger;

•In the wake of the data and ECB-speak, ESTR OIS rates rose, though we’re still below yesterday’s panic peak. Interestingly, the forward curve has become inverted again, with the market leaning towards a 25bps cut after three 25bps hikes. That’s finally something I can agree on (I have not penciled in ECB hikes, or at least not yet). I’m thinking of a six-month timeframe between the last hike and first cut, concurrent with ECB and energy price shocks history;

•Broad markets are quiet – for a change. US Treasury yields have moved little. Meaning that we’re about halfway between Monday’s panic peak and the relief rally lows. European equities are flattish, with no apparent benefit from Asian equities notching up solid gains this morning. S&P 500 futures have rebounded from the lows while Brent crude futures are trading a couple of bucks above the key $100 level. With President Trump stepping from the brink on Monday, the bond market recession trade has grounded to a halt. The US Treasury 2y10y spread, which had plunged to 36bps last week, has rebounded to 48bps;

•Bund spreads have widened further, with France and Italy underperforming. Italy’s Prime Minister Meloni’s loss in her signature constitutional referendum over the weekend probably weighs on BTPs too;

•In other news, there has been a surprisingly strong uptake at the ECB’s weekly MRO auction. Banks borrowed 17 billion euros, the highest uptake since the year turn. And if we exclude the year-turn (when banks borrow for window dressing purposes), it’s a record high since the ECB started to wind down its bond holdings;

•Looking ahead, eyes will be on Iran headlines and major central bank speak. Rinse, repeat. Also keep an eye on the US PMI to be released at 14:45. The market has predictably positioned for an outperformance of the US economy vis-à-vis the Eurozone economy.

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