Rates adjusting to energy-driven inflation shock risk

EU mid-market update: Acceleration in de-risking flows as uncertainty remains over severity and duration of Iran conflict; Rates adjusting to energy-driven inflation shock risk.

Notes/observations

- European equities opened sharply lower as the U.S.-Israel strikes on Iran and Tehran’s retaliatory attacks drove a global de-risking move. Asia absorbed the brunt, with the Kospi markedly weaker and the Nikkei extending losses. U.S. futures are lower but comparatively stable given U.S. energy independence. Bond yields are rising across regions as Monday’s energy shock feeds through; Bunds underperformed Treasuries. Dollar is broadly firmer. Oil and LNG continue to surge on shipping and infrastructure risk, while industrial metals weaken and bitcoin pares Monday’s rebound.

- Central uncertainty remains the duration and breadth of the conflict. Trump suggested a 4-5 week window but signaled the possibility of longer operations. Crude flows through the Strait of Hormuz have sharply declined; Qatar’s LNG halt has driven extreme gas repricing. Backwardation in Brent has widened, signaling acute tightness. Forecasts for Brent, WTI and TTF are being revised higher, raising the risk of a renewed inflation shock and a pushback in 2026 rate-cut expectations.

- Some Asian oil refiners are reportedly considering cutting runs by 20–30% because the widening Middle East conflict is making shipping through the Strait of Hormuz more difficult. The intensifying conflict also threatens access to a key chemical used for fertilizer and nickel processing, while exposure to Hormuz varies - China is less dependent (about 25% of imports via Hormuz) than South Korea (~70%) and Japan (~60%). India says it is looking for alternative supply sources and has roughly eight weeks of oil and fuel stocks, and Japan’s PM Takaichi said the chance of a supplementary budget is “not zero,” according to financial press.

- European rates are adjusting rapidly, dominated by inflation-risk repricing rather than safe-haven flows. Markets have reduced BoE cut odds after the energy spike. ECB’s Lane warned the conflict raises near-term inflation and dampens activity, with the impact dependent on duration. UK shop-price inflation eased but now carries less signal amid energy volatility. Attention turns to Chancellor Reeves’ fiscal update and gilt remit assumptions.

- UK's Reeves at 7:30ET will likely use the Spring Statement to argue that her earlier package - business tax rises alongside big infrastructure spending - is beginning to pay off, with the OBR’s updated numbers providing the proof points. The watchdog won’t formally judge whether ministers are meeting their fiscal rules, but it will publish the figures - leaving markets to scrutinise the “headroom” and discount any surprise giveaways as, at most, marginal. Morgan Stanley expects that buffer to stay near £20B, with modest forecast tweaks, strong cash receipts and £3.5B of extra day-to-day spending combining to shave it only slightly.

- Sector impacts are broadening: energy producers benefit, while refiners, airlines, freight operators and discretionary names face margin compression. Export-control tightening across Asia is emerging as a second-order risk.

- Gold remains firm but capped by dollar strength; positioning points to consolidation before any attempt at a sustained move above $5,500/oz. Silver’s volatility remains outsized. Crypto is softer as risk appetite erodes.

- Two research papers which caught TTN eye in recent days: ByteDance-unveiled CUDA Agent is a shot across the bow for “AI coding”: instead of settling for compilable kernels, it trains with reinforcement learning against profiling feedback so the model learns the grubby physics of GPU performance - warp behaviour, memory coalescing, bank conflicts - and, in doing so, can outrun mainstream toolchains on hard tasks. Microsoft, meanwhile, tackled the “goldfish” agent problem by turning memory from a prompt add-on into a learning substrate, mixing on-policy adaptation with off-policy replay so mistakes become training signal rather than dead history. If such systems move from lab to production, they could reshape enterprise software economics and, in time, nudge equity markets as investors reassess who captures the gains from more autonomous, hardware-savvy AI.

- Asia closed sharply lower with KOSPI underperforming -7.2%. EU indices -2.5% to -3.9%. US futures -1.6% to -2.2%. Gold -0.8%, DXY +0.6%; Commodity: Brent +5.6%, WTI +5.9%; Crypto: BTC +0.4%, ETH -0.1%.

Asia

- New Zealand Jan Building Permits M/M: +1.9% v -4.5% prior.

- Japan Jan Jobless Rate: 2.7%e v 2.6% prior;.

- Japan Q4 Capital Spending Y/Y: 6.5% v 3.0%e; Capital Spending (Ex Software) Y/Y: 7.3% v 3.9%e.

- Australia Q4 Current Account Balance: -21.1B v -A$18.3B prior.

- South Korea PMI Manufacturing: 51.1 v 51.2 prior- Australia Jan Building Approvals M/M: -7.2% v -14.9% prior.

- Japan sells 10-Year JGB Bonds; Avg yield: 2.129% v 2.2490% prior; bid-to-cover: 3.30x v 3.02x prior (Feb 2nd 2026).

- RBA Gov Bullock noted that every policy meeting is 'live' (**Note: pushed back against the idea the RBA only moves quarterly).

- Japan Fin Min Katayama: Sees ‘large’ market volatility on middle east situation. Closely watching financial markets with extremely strong sense of urgency.

- Trade Minister Akazawa says he is monitoring energy price moves, notes a new energy taskforce has been formed, and flags that Qatar accounts for about 4% of Japan’s LNG imports; with roughly three weeks of LNG stocks.

- US Treas Sec Bessent & China's Vice Premier He Lifeng expected to convene in Paris at end of next week (ahead of Trump-Xi expected Summit at end-Mar).

Global conflict/tensions

- US embassy in Riyadh was struck by two drones.

- US said to be preparing for a pick-up in attacks in Iran over the next 24 hours.

- State Department urged US citizens to leave more than a dozen Middle Eastern countries on commercial flights due to serious safety risks, as Iranian projectiles and blasts were reported across Israel, Saudi Arabia, Qatar and the UAE.

Europe

- UK Feb BRC Shop Price Index Y/Y: 1.1% v 1.5% prior; Food prices 3.5% v 3.9% prior.

Americas

- Fed Gov nominee Warsh planned push to shrink Fed balance sheet would evolve ‘slowly’ and unlikely to target FED balance sheet level pre-2008 crisis.

Energy

- Iran threatened to attack any ship trying to pass through Strait of Hormuz (**Note: Social media reports indicate the Strait of Hormuz remained open).

- Beijing said to be pushing Iran to keep the Straight of Hormuz open.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -3.1% at 604.54, FTSE -2.6% at 10,501.40, DAX -3.5% at 23,815.72, CAC-40 -2.7% at 8,165.33, IBEX-35 -4.0% at 17,158.74, FTSE MIB -3.9% at 44,467.50, SMI -2.8% at 13,427.00, S&P 500 Futures -1.7%].

Market focal points/key themes: European indices opened lower across the board and declined through the early part of the session; equities continue to react to Iran situation; all sectors start the day in the red; energy and communication services sectors among least negative; sectors leading the way lower include utilities and financials; oil & gas subsector supported after Brent moves over $80/bbl; insurance subsector under pressure amid potential costs from Iran conflict; reportedly politicians in Denmark urging exit from Orsted; TotalEnergies sells stake in German battery portfolio to Allianz; earnings expected in the upcoming US session include Target, Best Buy and AutoZone.

Equities

- Consumer discretionary: Beiersdorf [BEI.DE] -17.0% (earnings).

- Industrials: Maersk [MAERSKB.DK] +0.5% (continuing tensions around Strait of Hormuz), Thales [HO.FR] -1.5% (earnings).

- Technology: ASML [ASML.NL] -4.5% (sell-off in Asian tech names).

- Materials: Fresnillo [FRES.UK] -5.5% (earnings).

Speakers

- ECB’s Villeroy (France) commented that won’t decide rates based just on energy prices.

- ECB's Stournaras (Greece): If Iran war continues, will be upward pressure on Euro Zone inflation; No rush to change rates; Reiterates need for flexibility.

- Sweden Central Bank (Riksbank) Gov Thedeen: Inflation is close to target, interest rates have come down and the labour market has started to improve; Core inflation may trail forecast in 2026.

- IMF: Closely monitoring developments in the Mid-East; too early to assess economic impact on region and global economy.

- Russia Foreign Min Lavrov: Global nuclear threat becoming more acute due to Mid-East conflict.

- China Foreign Ministry spokesperson: Reiterates urge that all parties stop military operations and prevent further escalation of war.

- Pres Trump commented in a press interview that the US was doing well in Iran operation; PM Starmer not helpful; UK-US ties not like it used to be. US ties with France and Germany most solid of all.

- US Senator Cruz said to ask US Treasury to approve $200B tax cut; Senators want to reduce some taxes paid on capital gains.

- Iran said to have launched new wave of missiles on USD bases in region ( in Qatar, Bahrain and Oman).

Currencies/fixed income

- USD held onto its recent gains as safe-haven flows continued to dominate due to ongoing mid-east tensions.

- EUR/USD at 1.1605 despite dealers seeing a 50%s chance of a 25bps rate hike by the ECB this year. ECB officials noted that there should be no rush to change rates.

- GBP/USD below 1.3300 and unable to benefit from dealers dialing back expectations of BOE rate cuts this year. Markets only see one more rate cut at this time.

- USD/JPY at 157.65 with the 160 key resistance coming back into focus.

- 10-year German Bund yield last at 2.79%, France 10-year Oat at 3.40% and 10-year Gilt yield at 4.49% 10-year Treasury yield: 4.10%; 10-year JGB: 2.12%.

Economic data

- (NL) Netherlands Feb Preliminary CPI Y/Y: 2.4% v 2.2%e.

- (NL) Netherlands Feb Preliminary CPI EU Harmonized M/M: 1.5% v 1.3%e; Y/Y: 2.3% v 2.

- (TR) Turkey Feb CPI M/M: 3.0% v 2.9%e; Y/Y: 31.5% v 31.5%e; CPI Core Index Y/Y: 29.5% v 29.9%e.

- (TR) Turkey Feb PPI M/M: 2.4% v 2.7% prior; Y/Y: 27.6% v 27.2% prior.

- (HU) Hungary Q4 Final GDP Q/Q: 0.2% v 0.2% prelim; Y/Y: 0.8% v 0.7% prelim.

- (FR) France Jan YTD Budget Balance: -€9.7B v -€124.7B prior.

- (ES) Spain Feb Net Unemployment Change: +3.6K v +30.4K prior; Net Employment Change M/M +45.2K v +17.3K prior.

- (CZ) Czech Q4 Preliminary GDP (2nd reading) Q/Q: 0.6% v 0.5% advance; Y/Y: 2.6% v 2.4% advance.

- (AT) Austria Feb Preliminary CPI M/M: +0.8% v -0.7% prior; Y/Y: 2.2% v 2.0% prior.

- (BR) Brazil Feb FIPE CPI (Sao Paulo) M/M: 0.3% v 0.2%e.

- (EU) Euro Zone Advance Feb CPI Estimate Y/Y: 1.9% v 1.7%e; CPI Core Y/Y: 2.4% v 2.2%e.

- (IT) Italy Feb Preliminary CPI M/M: 0.8% v 0.3%e; Y/Y: 1.6% v 1.1%e.

- (IT) Italy Feb Preliminary CPI EU Harmonized M/M: 0.6% v 0.1%e; Y/Y: 1.6% v 1.1%e.

- (GR) Greece Jan Unemployment Rate: 7.7% v 7.5% prior.

Fixed income issuance

- (AT) Austria Debt Agency (AFFA) opened its book to sell 2029 and 2056 RAGB bonds via syndicate.

- (DE) Germany opened its book to sell new May 2041 green Bunds; guidance seen -0.5bps to conventional May 2041 Bunds (twin bund).

- (ES) Spain Debt Agency (Tesoro) sold total €5.94B vs. €5.5-6.5B indicated range in 6-month and 12-month bills.

- (ZA) South Africa sold total ZAR3.0B vs. ZAR3.0B indicated in 2038, 2039 and 2044 bonds.

Looking ahead

- (AR) Argentina Feb Government Tax Revenue: No est v 18337.6B prior.

- (US) Wards Feb Total Vehicle Sales: No est v 0.0B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €3.4B in 3-month, 6-month and 12-month bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 07:00 (BR) Brazil Q4 GDP Q/Q: 0.2%e v 0.1% prior; Y/Y: 1.8%e v 1.8% prior; GDP 4 quarters Accumulated: 2.3%e v 2.7% prior.

- 07:30 (UK) Chancellor Reeves delivers spring statement.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (BR) Brazil Jan Total Formal Job Creation: +95.0Ke v -618.2K prior.

- 09:55 (US) Fed’s Williams.

- 10:00 (MX) Mexico Central Bank Economist Survey.

- 10:00 (CO) Colombia Jan Exports: $4.2Be v $4.5B prior.

- 10:30 (AT)) ECB's Kocher (Austria) speaks at OeNB Women's Forum.

- 10:40 (NL) ECB's Sleijpen (Netherlands) at conference.

- 11:00 (DK) Denmark Feb Foreign Reserves: No est v 673.9B prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 11:55 (US) Fed’s Kashkari.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 16:45 (NZ) New Zealand Q4 Terms of Trade Index Q/Q: -0.3%e v -2.1% prior.

- 17:00 (AU) Australia Feb Final PMI Services: No est v 52.2 prelim; PMI Composite: No est v 52.0 prelim.

- 18:00 (KR) South Korea Jan Industrial Production M/M: 0.5%e v 1.7% prior; Y/Y: 3.2%e v -0.3% prior; Cyclical Leading Index Change: No est v 0.6 prior.

- 19:00 (NZ) New Zealand Feb ANZ Commodity Price M/M: No est v 2.0% prior.

- 19:30 (AU) Australia Q4 GDP Q/Q: 0.8%e v 0.4% prior; Y/Y: 2.3%e v 2.1% prior.

- 19:30 (JP) Japan Feb Final PMI Services: No est v 53,8 prelim; PMI Composite: No est v 53.8 prelim.

- 19:30 (HK) Hong Kong Feb PMI (whole economy): No est v 52.3 prior.

- 19:30 (SG) Singapore Feb PMI (whole economy): No est v 56.8 prior.

- 20:01 (IE) Ireland Feb PMI Services: No est v 54.5 prior; PMI Composite: No est v 53.3 prior.

- 20:30 (CN) China Feb Manufacturing PMI (Govt Official): 49.2e v 49.3 prior; Non-manufacturing PMI: 49.7e v 49.4 prior; Composite PMI: No est v 49.8 prior.

- 20:45 (CN) China Feb RatingDog Manufacturing PMI: 50.1e v 50.3 prior; PMI Services: 52.3e v 52.3 prior; PMI Composite: No est v 51.6 prior.

- 21:30 (HK) Hong Kong to sell 3-year and 5-year bonds.