By Bas van Geffen, Senior Macro Strategist at Rabobank
Trump’s 48-hour deadline turned into a weeklong one. Yesterday, the US president announced that he has “instructed the department of War to postpone any and all military strikes against Iranian power plants and energy infrastructure for a *US MARINES SLATED TO ARRIVE IN MIDEAST FRIDAY: WSJ Either way, Trump’s change of tone boosted risk sentiment and supported equity portfolios, particularly of those who just so happened to place join the fight against Iran. Closure of the Strait of Hormuz is impacting their energy exports, so the GCC nations may see a role for themselves to ensure that the Strait is reopened. But, more importantly, Iran’s retaliatory strikes against targets in neighbouring countries –and threats of more– may have struck a nerve. As a result, some of the optimism waned this morning already. Energy prices are rebounding from yesterday’s lows, and equity traders are once again taking a more cautious stance than they did after Trump’s social media post yesterday. Speaking of the economic damage caused, Eurozone consumer confidence took a significant hit in March, falling back to -16.3 from -12.3 in February. With the previous energy crisis still fresh in memory, that is no surprise. Faltering confidence has yet to affect actual consumer spending, but this does raise the risk that the war’s impact on economic activity in Europe could be visible relatively quickly. Amidst the geopolitical risks, the EU continues to seek diversification of its economic alliances. Brussels signed a free trade agreement with Australia, following on the deals with Mercosur, India, and Indonesia. Parliament still has to approve the deal, but this should be less contested than the Mercosur agreement. The EU-Australia deal includes a combination of tariff cuts and higher quotas for certain dairy products, beef and sheep meat. Geographical product names are protected by the deal, to the displeasure of Australian farmers, who believe that access to the European market remains impeded. Trade Commissioner Sefcovic said that the deal should increase annual bilateral trade by about €20 billion over the next decade, but that’s arguably not the EU’s main motivation. A security and defense partnership underscores the geopolitical motive, and improved access to Australia’s critical raw materials may be an extension of this. * * *
just as Trump's 5-day extension expires