US
The energy supply shock lingers as the US-Iran war remains in flux. Brent crude oil prices are up near $104 a barrel, the highest level since April 7 but below the March triple top of around $120 a barrel. Global bond yields are under renewed upside pressure as higher crude oil prices push up central bank rate expectations. USD is firmer against all major currencies.
We are sticking to our view that the worst of the energy shock is probably behind us. First, the US extended the ceasefire indefinitely. Second, the US “Open for All or Closed to All” approach to navigation for vessels transiting the Strait of Hormuz is more likely to accelerate a reopening of that crucial waterway because shared economic pain raises the incentives for all parties to reach a workable diplomatic off-ramp. As such, interest rate differentials between the US and other major economies should continue to keep the DXY (USD index) anchored within its nearly one-year 96.00-100.00 range.
The US April PMI is today’s data highlight (2:45pm London, 9:45am New York). The composite PMI is seen rising to 50.6 vs. 50.3. Initial jobless claims data for the week ended April 18 is also due (1:30pm London, 8:30am New York) and expected to show firms still reluctant to cut staff.
EUROZONE
EUR/USD is down near support at its 200-day moving average (1.1676). The Eurozone April PMI underscores a stagflationary tilt and is a drag for EUR. The composite PMI unexpectedly dropped to a 17-month low at 48.6 (consensus: 50.1, March: 50.2) signaling a -0.1% quarterly rate of GDP decline over Q2. The services sector was hit the hardest while the improvement in manufacturing activity reflected front loading amid supply concerns. Alarmingly, inflationary pressures strengthened across both sectors of the economy.
UK
GBP/USD is trading heavy around 1.3500. The UK April PMI suggests the economy is not yet breaking. The composite PMI unexpectedly improved to a 2-month high at 52.0 (consensus: 49.8, March: 50.3) signaling a 0.2% quarterly rate of GDP increase over Q2. However, the details are much less impressive. The upturn in business activity largely reflects a rush to secure purchases ahead of feared price rises and supply shortages linked to the war. Moreover, inflationary pressures picked up sharply in both the services and manufacturing sectors.
JAPAN
USD/JPY is back up near key resistance at 160.00. Unless crude oil prices make fresh highs, we expect USD/JPY to hold under 160.00. Japan’s April PMI suggests growth is holding but for the wrong reasons. The composite PMI slipped to a four-month low at 52.4 vs. 53.0 in March with services sector growth cooling but manufacturing growth rising at the steepest rate since February 2014. However, the surge in manufacturing activity likely reflects front-loading to get ahead of the potential supply disruption linked to the war in the Middle East.
PHILIPPINES
USD/PHP is up just shy of its March 30 record high at 63.8300 as higher crude oil prices outweigh the Philippines central bank (BSP) hawkish hike. BSP raised the policy rate 25bps to 4.50% because the “inflation outlook has deteriorated amid the ongoing conflict in the Middle East.” Roughly half the analysts polled by Bloomberg expected a hike, the rest penciled in no change. Today’s rate increase was the first one since October 2023, following an easing cycle that delivered 225bps of cuts in the past 20 months.
Governor Eli Remolona noted that the decision to raise rates “wasn’t unanimous” but it was a “good consensus,” adding that a 50bps hike was also considered. Importantly, Remolona signaled more hikes are in the pipeline stressing that “once we start raising the policy rate, we’re likely to raise it again”. Indeed, BSP now projects average headline inflation to breach the 4.0% tolerance ceiling in both 2026 and 2027.
