00:00Oil prices rise again on fears the ceasefire between the US and Iran is on the verge of
00:05collapse. Brent crude rose 6% on Monday morning after
00:11the US seized an Iranian cargo ship and shipping through the Strait of Hormuz is still largely
00:16halted. Markets staged a relief rally on Friday after the Iranian Foreign Minister said the
00:22strait was open but over the weekend Iran fired on two commercial vessels. While Chris
00:27Turner is global head of markets at ING. Chris, the market seems keen to find any reason for
00:32optimism but does it need to price in much more disrupted oil supply for perhaps months ahead?
00:37Yeah, it doesn't really want to do that at the moment. I think it's, as you say, it's really
00:40kind of looking through to the end of the crisis and Friday afternoon's price action perhaps gave
00:46us a bit of a preview of levels and, you know, where currencies could go, where equity markets
00:51should go should the Straits of Hormuz completely reopen. But for this week, yeah, a lot of
00:56uncertainty particularly about tomorrow and I think today the market will be looking out for
01:00any signs that the Iranians will confirm they will attend those peace talks because if you remember
01:05the ceasefire in theory does end tomorrow evening. This is becoming though not just an energy crisis
01:12but a crisis that's weighing on growth. EY published a report today saying that in the UK alone a quarter
01:18of a million people could lose their jobs by the middle of 2027 as the country would be teetering
01:22on the verge of a recession. But how serious a hit to growth should we be pricing in?
01:27Yeah, we've just released some updated kind of forecasts at ING and we have taken down our kind
01:32of growth forecasts and this is after all a stagflationary shock, right? Higher energy prices
01:37which are impacting how much consumers and businesses can spend on kind of other activities.
01:43So in terms of, you know, what we're looking at across like the Eurozone, for example, our team
01:48are knocking about sort of three tenths of a percent off growth this year. But I think what's so crucial
01:55is the duration of it. You just hear that from so many kind of policymakers. I think the expectations
02:01are in the market, perhaps with policymakers as well, that energy prices are going to come back to
02:06pre-crisis levels, perhaps over the summer or kind of late summer. But every week that passes and every
02:11week the prices stay up here, you know, we'll see further cuts to growth forecasts and further
02:17increases in inflation forecasts. Are we going to see more strain on government bonds then as
02:22governments inevitably find themselves spending money to try and help consumers?
02:26Yeah, we haven't seen that fiscal side too much at the moment. I mean, the sell-off in government bonds
02:31was really driven initially, I think in the first month by the central bank shock, the idea that central
02:37banks, particularly in Europe, would have to hike rates aggressively. And that's rippled through to
02:41the long end of the market. So we haven't actually seen the fiscal risk premium going to bond markets
02:46just yet. And I think if you look particularly in Europe, kind of the scale of the bailout and support
02:52is much smaller than 2022. Indeed, the size of the shock, particularly because natural gas hasn't gone
02:59as high as it did back then, which is so important for electricity prices in Europe. So not yet, but
03:06the
03:06longer the shock goes on, increasingly, I suppose, the long end of the market will kind of look at that
03:12and perhaps still be vulnerable. On the equities front, we've seen money pouring back into US stocks
03:17as the dollar rises again. Is that the best strategy? The US seems relatively protected.
03:22Yeah, I think, yeah, in a way, if you look across kind of equity markets kind of globally and the
03:26US
03:27as well, the view is that this is kind of short-lived shock, for example, that the Fed will be
03:33able to cut
03:33rates later this year, ideally two times. And we're back to where we were at the start of the year.
03:40But I think global equity markets in general as an asset class, I think they haven't fully factored in
03:45this kind of shock we've seen, which has impacted growth and is keeping interest rates structurally higher.
03:51So I think, you know, looking on a sort of relative value basis, Europe does have higher kind of challenges.
03:59And you can see why the US might seem to be relatively more insulated.
04:04But I would say just in general, as an asset class, I would say it's a little bit too early
04:08to be jumping back
04:09into equities with full force until we've got a much clearer view on how long this energy price shock lasts.
04:17Do you think the dollar has further to rise, though, if this sell the US trade is over?
04:21Yes. So in terms of like the dollar, we've seen it sell off a little bit on kind of Friday
04:27on a kind of pro-risk move
04:28and sort of bounce back a little. I mean, the dollarization that we've talked about in the past,
04:34I think, is really a multi-decade kind of trend. It's not quick.
04:39And I think what we see, we've just put out some new forecasts for the next, you know,
04:44over the next sort of forecast horizon, like two years.
04:46I think probably the dollar isn't going too far over the next two or three months or so
04:51until this shock kind of clears its way.
04:55But later in the year, ING, we do think the Fed in September and December still will be able to
05:00kind of cut rates.
05:01And if so, that should put the dollar on the back foot.
05:05So I don't think the dollar needs to rally an awful lot.
05:07But equally at the moment, I don't think it needs to sell off a lot either.
05:10That was Chris Turner of ING. Don't forget, you can watch more videos on Reuters.com.
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