•Meanwhile in markets, that truce in the US/Israel-Iran war that you have been yearning for seems even further away. Predictably, markets are voting with their feet, with bonds and equities back at the lows, and crude oil marching towards the high of the week;

•The US and Iran are escalating further, and it takes a real optimist/die-hard bull to view the spectacle as attempts to ‘escalate to de-escalate.’ Overnight, President Trump was full of bloodlust on his social media feed, boasting about killing the “scumbags” in Iran. He also warned that something big could happen to Iran soon. Clearly, Trump is frustrated with Iran’s new leader taking a hardline stance and successfully closing the Strait of Hormuz for basically all merchantmen traffic;

•But it gets even worse. While the White House touts all these fancy social vids of destroying ‘targets’ in Iran, from the New York Times we learn that the Iranians are now simply using large amounts of cheap small boats to mine the Strait. Which, in turn, has led to speculation that the US must put boots on the ground in Iran to regain control of the Strait. Incidentally, the only *positive* news I could find was war-hawk US Senator Graham dismissing just that, putting boots on the ground;

•From the incessant leaks of US officials to the press we have learned, amongst other things, that the US started the war with its eyes wide shut. Take this latest snippet from the well-informed folks at CNN. The geniuses in the White House never prepared for the Iranians closing Hormuz, Tehran’s biggest form of leverage over Washington. The stupidity on the part of the White House is simply breathtaking. Which reminds me of Mike Tyson’s famous quip: everybody has a plan until they get punched in the face. I would add: but what if you have no plan in the first place? You still get punched in the face;

•Turning to some market commentary, Brent crude futures are hovering around $100 a barrel. That’s below Monday’s peak of $120 a barrel, which triggered White House verbal intervention – that the war will be short. On the other hand, we’re way above the $81 dollar low of the week, when truce optimism reigned supreme, and when news of the massive release of strategic oil reserves pushed the price of black gold even lower;

•Clearly, the US ‘owns’ the debacle in the oil market, with supply clogging up in the Gulf, and the rest of the world scrambling for oil. The US is doling out waivers left and right for Ruski crude, which would deliver the Kremlin a nice hard currency windfall, which in turn can be used to purchase essential imports for the war machine;

•S&P 500 futures are near the lows for the week, with the cash market down a manageable one percent for the week. For the year, perhaps a better yardstick, the index is down 2.5%. Surprisingly, the Stoxx 50 is up half a percent for the week, though in the greater scheme of things it quickly becomes apparent that a solid YTD gain has turned into a YTD loss of 0.7%. Asian equities are mostly lower for the day and the week, but except for the Nikkei the losses are contained so to say;

•Bund and US Treasury yields are up in a bear-flattening pattern this week, with Bund yields up 11-10bps and UST yields 13-18bps. All across the curve, yields have broken out to the upside, all blasting through their respective 50-, 100-, and 200-DMAs. For a change, it’s the European bonds and rates markets that set the tone. With ESTR pricing having swung violently from small but meaningful odds of a cut to pricing in a hike by June, USD OIS and fed funds/SOFR futures now no longer fully price in even one lousy 25bps Fed rate cut this year. I clock the January 2027 fed funds futures at an implied 3.44, meaning just 20bps of cuts are priced in;

•The broad dollar is up for the week, with gains of more than half a percent on a trade-weighted basis. In the crosses, the biggest losers versus the greenback are the euro and, surprisingly, the Swiss franc. USDJPY is approaching 160, which I am sure will set off alarm bells ringing in Tokyo. Gold and Bitcoin have traded places, with the former down 1.5% for the week and the latter up 6%;

•Looking ahead, besides the usual Iran headline watching, markets will be eying US PCE income, spending, and inflation data. With core expected to print at a lofty 3.1%, there’s plenty of reason for the Fed to worry about inflation at rather inopportune moment – the labor market is weaker than Powell & Co believed it to be. We also get US job openings, by the way;

•Next week, the key event is the ECB meeting, where Lagarde & Co will likely tilt hawkish. However, do not expect them to tee up a rate hike for the April meeting  and not even the June meeting. They’re happy with the market doing their job of tightening financial conditions. But they will prefer to only hike rates when they’re as sure as they can be that the energy price shock is sustained and will feed through in broader prices. They don’t want to look like fools when Trump inevitably decides to pull out of this mess that he has created.

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