•Meanwhile in markets, I can write the same thing day after day. The latest twists and turns in the Iran war dictate the markets direction, with bonds, rates, equities, and FX taking their cue from crude oil and natural gas prices;

•Right now, we’re experiencing a wee bit of reprieve after the Israelis promised not to attack Iran’s energy infrastructure. Recall that the tit-for-tat strikes on natural gas facilities triggered a surge in crude and natural gas prices yesterday, with the former getting awfully close to the March panic high of $119.5 a barrel. Brent has sagged to $107 barrel or thereabout this morning. Dutch natural gas futures have erased half of yesterday’s spike;

•Reading the tealeaves in the latest reporting on the US side of things, the war could either last until the end of the year or even well into 2027 or be wrapped up by May. Here’s my thinking on the bull and bear case. In case of the latter, the Pentagon’s requested budget increase of 200 billion dollars could extend the war by four or five months if the current high-intensity pace of US strikes is maintained. If the war settles at a lower tempo, funding could stretch the duration to more than a year. Of course, it remains to be seen if Congress approves the Administration’s funding request in the first place;

•Then there’s the US expeditionary force consisting of a contingent of several thousand of marines that is en route to the Middle East. One could easily see how a deployment of the marines would shift the war to a new phase, and that it could drag on even longer;

•In the bull case, President Trump would declare victory in his Special Military Excursion before his visit to CCP General Secretary Xi Jinping, which is now supposed to take place mid-May. Recall that Trump called of this month’s visit because of the war;

•As I wrote in yesterday’s ECB post-mortem, the conflict determines the fate of ECB rates. If our central bank overlords in Frankfurt believe that the war will drag on into the second half, they’ll likely raise rates in June;

•And speaking of the ECB, ECB-speakers are all over the place this morning. Bundesbank President Nagel was hawkish, saying that an April hike is a possibility. Other speakers hailing from the smaller national central banks were more cautious, preferring to wait until June and then decide on raising rates or not;

•Turning to some overnight market commentary, with energy prices off the highs, US Treasury yields are lower, though only modestly so. Asian equities are lower again this morning, and for the week equities in Europe and Asia are suffering losses of roughly one to two percent. US markets are outperforming, with only a modest decline for the S&P 500 this week;

•ECB-dated ESTRs have mostly priced in an April ECB hike, while pricing for the June ECB shows small odds of a 2.5% deposit rate;

•The calendar for today is empty. Which means more headline watching. Besides Iran, key events next week include the PMIs, which will give us the first insight into corporate pricing behavior in response to the war.

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