- Trump’s Strait of Hormuz gambit poised to revive risk aversion.
- IMF to offer timely assessment of growth outlook and sovereign debt sustainability.
- Hungary sees record election turnout, results imminent.
Rock the Strait
The US-Iran talks to end the war failed over the weekend, although the fragile two-week ceasefire struck on April 8 still holds. Vice-President JD Vance blamed the failure of the negotiations on Iran’s refusal to abandon its nuclear weapons program. Importantly, the talks did not break down because of Iran’s demand for recognition of its sovereignty over the critical Strait of Hormuz, leaving room for a tactical diplomatic off-ramp.
However, on Sunday, President Donald Trump threw a curve ball writing “Effective immediately, the United States Navy…will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz…No one who pays an illegal toll will have safe passage on the high seas.” The comments look more like a negotiating gambit to reset the bargaining terms of Strait of Hormuz access than a durable blockade.
Regardless, Trump’s move to announce a naval blockade of the Strait of Hormuz is set to reignite risk aversion this week. Crude oil prices are likely to retrace some of last week’s ceasefire-induced decline, while the potential for an increase in tensions with China, a significant buyer of Iranian oil, can add to market unease.
Bottom line: the energy shock may not be over, but we are sticking to the view that the worst may be in the rear-view mirror. If so, interest rate differentials between the US and other major economies will continue to keep the DXY (USD index) anchored within its nearly one-year 96.00-100.00 range over the next few months. Structurally, we maintain our long-held bearish USD view because of: (i) fading confidence in US trade and security policy, (ii) worsening US fiscal credibility, and (iii) the ongoing politicization of the Fed.
IMF: Slower Global Growth Ahead
The IMF releases its closely watched World Economic Outlook on Tuesday. IMF chief Kristalina Georgieva flagged last week that global growth will be downgraded, even under the most hopeful scenario of a swift normalization to the energy shock. “Why? Because of significant infrastructure damage, supply disruptions, losses of confidence, and other scarring effects.” Georgieva also warned that the world has a fiscal space problem reflecting growing public debt and rising interest payments.
Indeed, we previously highlighted that a key risk facing financial markets is that the energy shock morphs into a fiscal shock as higher borrowing costs collide with already stretched public finances, while sovereign debt is increasingly held by price-sensitive hedged funds. The IMF’s updated Global Financial Stability Report (Tuesday) and Fiscal Monitor (Wednesday) should offer a timely assessment around sovereign debt sustainability.
Do US Securities Still Command Foreign Interest?
Second-tier US data are due this week: March PPI, NFIB small business optimism index, existing home sales, import/export price index, industrial production, and the Fed Beige Book.
One release that will be particularly noteworthy is the February US Treasury International Capital (TIC) report (Wednesday). In January, the TIC data showed that foreign investors accumulated a record $1673bn of long-term US securities (treasury bonds & notes, corporate bonds, equities, gov’t agency bonds), challenging the “Sell America” narrative.
Nevertheless, we expect foreign appetite for US long-term securities to dwindle over time. The Trump administration’s effort to narrow the US trade deficit means fewer dollars will flow overseas, reducing the need for those funds to be recycled back into US securities. That’s pure balance of payments mechanics and is a structural drag on USD.
Australia Jobs to Shape RBA Rate Hike Path
At its last March 17 meeting, the RBA delivered a back-to-back 25bps cash rate target hike to 4.10% in a narrow 5-4 vote. The four dissenters wanted a hawkish hold, citing in part uncertainty surrounding the extent of tightness in the labor market. As such, Australia’s March labor force report will set the bar for the timing of the next RBA rate increase (Wednesday).
The economy is projected to add +17.8k jobs vs. +48.9k in February and the unemployment rate is seen at 4.3% for a second straight month, in line with the RBA’s 2026 projection. Stronger jobs growth would lift bets of a follow-up 25bps rate hike at the next May 5 policy decision (currently 62% priced-in), while softer data would push it out to later. AUD/USD faces stiff resistance at 0.7200, while immediate support is offered at 0.7000.
China Growth Check
China Q1 real GDP print is due Wednesday. Real GDP is seen at 1.4% q/q vs. 1.2% in Q4, tracking China’s 4.5% to 5% growth target for 2026. China’s growth target is a government-set growth goal used as a policy tool to guide economic/social planning rather than a reflection of underlying supply and demand dynamic. That means the quality and sources of China’s growth is more relevant for investors.
From that perspective, China’s long-term economic health remains weak. Net exports continue to be the main growth engine, consumer spending is struggling to gain traction, and fixed-asset investment remains a drag. However, continued CNH appreciation can help the country stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.
Hungary Election: The Road to 100
Hungarians went to the polls in record numbers today to elect a new parliament. Hungary’s election office said it will start posting partial results on its website from 8pm local time, with a fuller count expected later in the evening. 100 seats are enough to win a simple majority in the 199-seat chamber, and 133 seats are needed to secure a supermajority that would pave the way for constitutional reforms.
Poll of polls show Peter Magyar’s Tisza party holding a double-digit lead over Prime Minister Viktor Orban’s Fidesz party. As such, the base case is for Magyar’s party to win a majority. The larger Magyar’s majority, the greater the relief rally in HUF because it would underscore a pro-EU policy reset and improve odds of unlocking suspended EU funds. The negative tail risk for HUF is if Orban’s party wins a majority or if no single party wins enough seats to govern on its own (hung parliament).
