Markets wanted something different

Daily update

US President Trump’s remarks yesterday were a compilation of recent social media posts in both tone and content. While there were signals of an imminent US retreat from the Gulf, the aggressive remarks shaped market perceptions. US escalation (however short-lived) risks being met with an Iranian response, threatening more infrastructure damage in the Gulf. That could extend the economic damage of the war well beyond any reopening of the Strait of Hormuz.
Trump declared the US has “no inflation” —an interpretation that differs somewhat from both official statistics and general perceptions. The vast majority of US households are negatively affected by higher oil prices (only tiny minority are net beneficiaries). With gasoline prices moving further above USD 4 per gallon, inflation perceptions are likely to increase. The Financial Times reports that US consumers may face higher tariffs on imported medicines from today.
South Korea’s March consumer price inflation increased modestly, as the government’s price cap means oil prices hit the fiscal balance, not inflation and economic growth. Price caps can only be sustained for so long, and they prevent the pricing mechanism from changing oil consumers’ behavior.
US February import and export data are due, but with markets’ focus shifting from trade war to actual war are likely to assume less prominence.