Monday: Middle East conflict escalates

The

Strait of Hallmews remains shut as the Middle East conflict escalates.

The U.S. strikes Carg Island, and around attacks the UAE's oil port.

With prices expected to rise, over Friday's $103 barrel close, later today.

That's coming up on our five things in five minutes on Monday, March 16th, and then

in our deep dive interview, ANZ Group Chief Economist Richard Yetzanger analyzes the risks

facing central banks this week.

This gets more troublesome if rather than the price of energy being the main challenge,

the availability of energy becomes the main challenge.

But first in five and five with the ANZ, the first U.S. Consumer Sentiment Survey, taken

since the outbreak of the conflict in Iran and the closure of the Strait of Hallmews,

is found stable inflation expectations.

The second half of the responses to the University of Michigan Survey was taken in the

first nine days of March, since ANZ's head of G3 Economics, Brian Martin.

Interestingly, that showed that inflation expectations remained stable at the one-year

measure and declined on 10th of a percentage point to 3.2% of the five to ten-year measure.

That's consistent with what we're seeing from market-based measures of inflation expectations,

namely the five-year, five-year inflation swap.

That too is indicating that inflation expectations remained stable, and I think going into

the FOMC meeting this week, that's very important.

Central bank will be able to look through the short-term supply side risks from energy prices

as long as inflation expectations remain stable.

So we are expecting no change from the FOMC.

The S&P 500 closed down 0.6% while the Nasdaq closed 0.9% down on Friday.

The Dow fed better with a 0.3% fall.

The U.S. ten-year yield rose 1.2 basis points to 4.285%.

West Texas Intermediate futures rose 3.1% to $98.71 U.S.

of barrel on Friday.

While Brent Crude futures rose 2.7% to $103.14 U.S.

of barrel, and they're expected to rise again later today.

Gold was down 1.3% at $5,061 U.S.

announced.

The U.S. dollar index rose 0.6%.

The Aussie dollar fell 1.4% to 69.79 U.S.

since late on Friday, more on that in a minute, while the Kiwi also fell 1.4%

to 57.72 U.S.

since.

Number 2.

There was also data on Friday night on U.S. GDP

and consumer price inflation, showing fourth quarter GDP rose at an annual rate of 0.7%,

which was half the initial estimate.

Core personal consumption expenditure or PCE inflation rose to 3.1%

from the first estimate of 3%.

Here's Brian again.

The inflation numbers that we've had out this week from the CPI and the PCE deflator.

There are reasons to be encouraged that prior to the conflict,

inflation remains contained in the United States and as tariff affects

fall off throughout the course of this year gradually,

it's actually to inflation coming lower.

But we do have elevated inflation uncertainty in the short term coming from

higher energy prices and we're just going to have to ride that up for the time being

and policy makers, I think, will proceed cautiously as a consequence.

Number 3.

Ainsett Research has revised upwards its forecast with the Australian dollar

at the end of the year to 75 U.S.

since from 73 U.S.

since for two reasons.

Since Ainsett's head of FX research, Marjorbenza Man.

We have seen the Aussie demonstrating resilience,

especially against various crosses and has seen relatively less downside

in fact compared to other FX pairs during the recent period of heightened risk

aversion, following the escalation of the Middle East conflict over the last few weeks.

Now, of course, on the domestic front things are looking pretty strong.

The R.V.

hawkish policy stance has, of course, helped.

So we think that a combination of higher rates are positive terms of trade

shock, which will see through from high oil prices and Australia's economic

pulse, which is stronger relative to other economies, are all positive for the Aussie dollar.

Number 4.

Data due from China later today is expected to show a two-speed economy.

With an even retail sales growth, solid industrial production growth,

but contracting investment.

Since Ainsett Research Economist, Vicky Shaljo.

Catering spending is expected to stay resilient at around 5%,

while car and household appliance sales remain disappointing.

Notably, per capita daily spending declined by roughly 10%

during the 2026 Spring Festival holiday.

The second data point we watch is the industrial production,

which is expected to grow by around 5%.

Supported by the strong trade momentum.

The third data point we're watching is a fixed assets investment,

which is likely to have contracted by about 6% a year in the first two months of 2026.

Number 5.

In New Zealand on Friday, there was another sign of solid manufacturing output growth,

with the business New Zealand being zed performance of manufacturing,

or PMI survey, virtually unchanged at 55.

Remember, a number over 50 represents expansion.

And the long run average has been at 52.5.

Since Ainsett Senior Economist, Matt Colt.

One of the interesting things about the PMI recently has been that

production and new orders have been particularly strong,

which are sort of the key components in it,

and suggests that the manufacturing sector has been

picking up some momentum recently.

Matt Goldbair.

Now, on our deep dive interview today,

Ainsett Group Chief Economist Richard Gettinger

analyzes the risk, now facing central banks and consumers,

as the state of hall moves remains closed,

stopping 20% of the world's oil supply flowing to the Asia-Pacific region in particular.

Ainsett Richard First, our central banks meeting this week,

will see this energy price shock as they decide on interest rates,

including the Reserve Bank of Australia tomorrow,

the Fed, and the Bank of Canada on Thursday morning,

Australian time, and the European Central Bank and the Bank of England on Thursday night.

I think in general, they're going to validate what markets are price.

Markets of effectively pricing this crisis so far

is much more of an inflation problem than a growth problem.

I mean, normally the argument is if you have an impact on both,

some sort of supply side shock that pushes up prices and down growth,

as long as the policy is set appropriately for current conditions,

the central bank should look through the price shock.

But this time, I think central banks are going to validate

what the way markets that are interpreting it.

So for the RBA, we think the price shock has been enough to tip them over to hiking this week.

We think, you know, the ECB, we've actually taken some easing out of our forecast.

We didn't expect them to move this meeting,

but we think they will, at the margin, be a little bit less

dubious than we thought previously.

The Bank of England, we had expected a cut this week,

but in the last week or so, revised that a way to argue they're on hold.

And the market, of course, has priced out fed easing.

We still expect the fed to be easing, but not this meeting.

And so the Fed also, I expect to deliver kind of that slightly hawkish message

of this is more of an upside-price problem than a downside growth problem.

And how might economies react to this news about both higher energy prices

and higher than would otherwise have been the case higher interest rates?

Well, it's obviously another challenge for household sectors.

Cost of living in inverted commas, one of the most used phrases in the last few years,

almost regardless of which economy you look at.

And this is another challenge, even for net energy exporting economies like Australia,

the US, Malaysia.

Obviously, within those economies, at an aggregate level,

the economy might be better off from higher energy prices,

but within the economies, it's a particular segment of the corporate sector,

which benefits, but the household sector almost uniformly

is facing a more costly environment because of higher energy prices.

So what do you think might change that view of the growth versus inflation trade off?

Obviously, current conditions are difficult enough,

particularly for households and even for central banks

who've been trying to balance this kind of just sticky inflation story

in the last few years.

Certainly, that's been the case for most central banks.

This gets more troublesome if rather than the price of energy

being the main challenge, the availability of energy becomes the main challenge.

So it's not just that you're perhaps paying sky high prices to fill up your car

or or power your industry,

but actually you just can't get the energy because it's not getting through

and you're finding it's being redirected to other areas.

There's a similar challenge with fertilizer agriculture can keep going

for some weeks in most economies on the basis of existing supply,

but fertilizer supply also very closely linked to the supply of oil.

As this, if this conflict persists for weeks on end,

that will start to become the main worry.

What are you getting of there?

I'm Bernard Hickey, that was five and five with ANC for Monday, March 16th.

Catch you tomorrow with a preview of the Reserve.

Thank you for Australia's decision tomorrow afternoon,

which is expected to be a hike.

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