The economic “phony war”

Daily update

The US insists peace talks are taking place with Iran. Markets are inclined to be skeptical of US statements in the absence of Iranian verification. The US 15-point peace plan was rejected, which was not a surprise for investors. Investors’ attitude toward the US’s Friday deadline for reopening the Strait of Hormuz is to assume the same “flexibility” is applied to trade deal deadlines.
Economically, this is still a “phony war” phase. Consumers still have the resources to pay for higher oil prices. Physical shortages of energy or other commodities have not been especially apparent as stockpiles are used. The price for reconstruction in Gulf states has not been paid. Oil prices are not at levels likely to induce a 20%, or even a 10%. decline in global demand.
There are several central bank speakers, mainly from the Bank of England and the Federal Reserve. The BoE’s rhetoric around its last policy meeting seemed excessive, and it would be nice to hear some moderation. The fetishization of inflation expectations to support hawkishness ignores the fact that wage growth has not generally responded to expectation shifts in recent years.
US initial jobless claims data and some business sentiment polls are due, but will likely be overlooked by markets.