Deadlines challenge the optimism bias

Daily update

US President Trump’s Iranian deadline concerns markets as escalation will do further damage to regional infrastructure. If the US or Iran attacks desalination plants, the ability of people to remain in the region is questioned. Destroying energy infrastructure delays oil market normalization beyond when Iran chooses to reopen the Strait of Hormuz. Markets’ bias to optimism and a pattern of the US delaying its deadlines have muted the price response.
The UK hosts a group of over 40 nations (not including the US) to discuss Hormuz security once hostilities conclude. This may not move markets now, but has longer-term importance—insurance costs, volume of freight, and the fiscal burden of defense being considerations.
The New York Federal Reserve poll of consumers’ inflation expectations has avoided the extremes of the Michigan data (subject to absurd political partisan bias). The fetishization of inflation expectations elevates the focus on these numbers—what actually matters is whether consumers change behavior as expectations change. New York Fed President Williams speaks today.
Sweden’s March inflation was notably lower than expected. Energy costs did contribute, but lower VAT taxes on food offset. It is a reminder that governments can mitigate the impact of the war on consumers, albeit by incurring other costs.