Week in Review: Trump tries to steady markets

0:00This week, oil prices swung as traders tried to predict President Trump's intentions in the Middle East. While the OECD says the war could send US inflation to 4.2%, and the US Treasury market is starting to show the strain. This is Royter's morning bid bringing you unfiltered market news and analysis straight from the Royter's newsroom seven days a week. I'm Elena Cassas in London, and I'm Peter Devlin, it's Saturday, March 20th. So Elena, capping off another volatile week for markets, now entered the 4th week of the Iran conflict, but this week it seemed that the battleground did shift a bit. It was a war of words, maybe this week. We saw rhetoric and skepticism from both sides, and we heard from World War White House suppress Secretary Caroline Levitt this week saying that the Iranian regime is looking for an off-ramp, but maybe that could be said for both sides, I mean, Trump is saying diplomacy, while the Iran side is saying that he's negotiating with himself. If this really is an off-ramp, it seems more like a traffic jam this week, doesn't it? Well, this is all very difficult to price in for oil traders on Thursday night, President

1:02Trump said he would extend the deadline for airstrikes on Iran's energy plants for another 10 days. It's noticeable that he often makes these announcements after steep sell-offs in the market as we saw on Thursday, and when he ramps up, the rhetoric sends more troops to the Middle East, for example, that often comes at the weekend when oil markets are not open. So traders are wondering now when exactly we get to with threshold, where the price of oil forces President Trump to step back. At the pump in the US, the average price for a gallon of gasoline, by the end of this week, was over $4, diesels up to $5. That is hugely sensitive for the American public, and so traders are trying to work out exactly when that's going to force him to de-escalate. Well, Brent Crude has seen its biggest adjambas since the 1990s, but credit is where credit is due, and we've not really seen the really scary oil prices that we were talking about at the start of the war, $150, $200 a barrel, and that really comes down to rhetoric from President Trump, is he winning the job-burning battle? We haven't seen them yet, but that doesn't mean that we couldn't. They are still, most traders think, very possible, $150, $200.

2:04Depending on how long this goes on, Macquarie said this week 200 is very possible if the conflict continues until the end of June, there's about 11 million barrels of oil knocked in in the Persian Gulf that can't go anywhere, and of course the main customers for this in Asia are starting to run down their own reserves, so at the moment oil traders are betting on a quick resolution, but of course there's no guarantee at all. Exactly, and sort of any escalation seems to be bad for everyone if we see energy infrastructure across the Gulf attack even more, and that's really yet feeding it into worries in terms of data, and we saw that bit this week, didn't we? Well, we certainly saw some worrying inflation forecasts, the OECD thinks that inflation across the G10 economies could go up to 4%, and then the US 4.2% is worth pointing out that a lot of economists think this is an excessively steep forecast, because we won't necessarily see a repeat of what we did in 2022 when Russia invaded Ukraine and that sent energy prices through the roof, because that was at a time when there was an enormous amount of pent-up demand in the economy, coming out of the pandemic, where businesses had a lot of pricing

3:04power, they were able to pass those higher prices onto consumers, and where workers were also in short supply, so they were able to ask their employers for higher wages, neither of those things are true anymore. The job market looks already weak, so it becomes much harder for employees to ask for wage rises, and businesses have less scope to pass higher prices onto consumers, so a lot of economists think these spiking energy prices will simply destroy demand, and they could actually lead to lower inflation. Well, the OECD as well was always worried about the tighter market because of immigration, they also take a sort of survey of inflation over a whole period annually, rather than just a quarter. So there was some worries about this in data coming through, but IMF is due to report next week. So we'll be closer and watch for that, but let's look at maybe the market reaction as well. Markets have always been very head-lined driven, but night seems that any social media tweet can sort of turn everything, and higher traders really positioning sales for this. Well, they're certainly struggling to predict what's coming next. What we see is really a collapse in the volume of trading.

4:05They are standing on the sidelines, watching and waiting, trying to work out what's coming next. The US bond market had two sales this week that really didn't go very well at all on Tuesday and on Wednesday. Most of the US Treasuries that were on sale ended up being bought up by dealers. That's big banks who essentially act as the buyer of last resort if nobody else on the market wants to buy these US bonds. So that just illustrates that traders are nervous to take any position at all at the moment. Well, one analyst we spoke to this week, we asked him that question, how are you positioning? And he said that to really traders are getting a bit wary of goals, not really seeing that safe even appeal. If you're sticking with the equities, you need to get defensive now, but really you're right, traders may be caching out. And if banknoters are going to have President Trump's signature on it, maybe that's going to sting a bit more. Well, the one rise we have seen is in the dollar itself, so it looks like cash truly is the last safe haven asset. Did you know the Sebo VIX index at its core is a measure of market uncertainty. The VIX could be rising because of bullish positioning in the underlying Sebo SPX index

5:07options market due to fear of missing out, rather than fear of downside. In Saturday, so how about a quiz? We've talked endlessly about the blocked, straight-of-hormers, but just how wide is it at its narrowest point? Is it A, 10 miles, B, 21 miles, or C, 45 miles? We'll have the answer for you in tomorrow's podcast. For more of any of today's stories, head to rotors.com or the rotors app. Follow us on your favorite podcast player and a few on a smart speaker. Disass for latest market news from Reuters, seven days a week, and we'll be back tomorrow.