Investors were in a wary mood on Monday as hostilities in the Gulf kept oil prices elevated, clouding an inflation outlook that should keep most central banks on pause at policy meetings this week, though Australia is likely to hike. The situation in the Strait of Hormuz remained a major investor focus and U.S. President Donald Trump's demands for a coalition to help reopen the vital waterway appeared to fall on deaf ears on Monday as allies Japan and Australia said they were not planning to send vessels to escort ships through it. The Reuters Iran Briefing newsletter keeps you informed with the latest developments and analysis of the Iran war. Sign up here. Advertisement · Scroll to continue
Further complicating matters, Trump told the Financial Times on Sunday that he was expecting China to help unblock the strait before his scheduled meeting with President Xi Jinping in Beijing at the end of this month. He said he might postpone his trip if China did not provide assistance. He also warned that NATO faces a “very bad” future if its members failed to come to Washington’s aid. Benchmark Brent crude was last at $106.30 a barrel, up 3.7% on the day. It was below $70 a barrel in late February before the war began and had dipped under $60 in early January. This sharp move has caused market participants to dramatically reassess what they think central banks will do and traders have slashed the amount of easing they had expected this year. Advertisement · Scroll to continue
Traders have not quite fully priced one Federal Reserve rate cut this year and they expect at least one hike by the European Central Bank by the end of 2026. And with interest-rate setters in the U.S., Britain, euro zone, Japan, Australia, Canada, Switzerland and Sweden this week all holding their first meetings since the start of the war, investors hope they will get some more colour on policymakers' thinking. The big question for officials is "how long does the conflict last, (and) does the shock in energy prices - offset by fiscal support - cause second-round inflation effects and therefore require restrictive monetary policy," said Kenneth Broux, head of corporate research FX and rates at Societe Generale. "Or are economies heading down a recessionary path and does oil trigger a bear market in risk assets?"
