Morning from Europe

Quite a rough day in equity markets as Fed’s Kashkari warned of “zero cuts if no inflation progress”, while the Israeli/Iranian relationship and the risk of a retaliation strike within Israel increased

Iran striking within Israel would be a substantial increase of aggression compared with a tit for tat response, which is normally the typical “modus” from Tehran. First of all, Iran usually responds reciprocally and in this case that would mean a missile or drone attack outside of Israel proper (or in border regions) against official Israeli property, however not necessarily directly at military assets. Such an attack would be a clear message from Iran that they do not want further escalation and most likely, Israel will leave it at that. So – expect an Iranian response, but keep an eye out for the magnitude, geography and targets and try to decipher the Iranian message out of that.

We consider the sell-off a bit exaggerated in light of this, but admit that 1) weaker liquidity conditions and 2) tax seasonality, make it more likely that reversals/corrections like this happen through April compared to the very positive markets over the past 2 quarters.

Energy remains sought after amidst this and with continued decent trends out of Manufacturing, we are likely staring directly into a Q2 supply deficit as the demand side suggests OPEC+ should increase the output while they in turn do the exact opposite.

Chart 1: OPEC+ cuts while the gauge of activity/demand increases

The commodity bull market has broadened significantly in recent weeks. OPEC has done its bit to keep prices up, but it now seems like there are spillover effects into