The policy-induced recession risk

Daily update

Crude oil prices and diesel prices are up (there seems to be uncertainty about whether last Friday’s pledge to release diesel reserves is actually just confirming previously announced reserve releases). Bonds and equities do not like this. Central banks have pretended that they can do something about oil prices, which worries investors. If central banks want to offset inflation from an oil shock, they need to create a recession (or near recession) in the non-oil economy via aggressively restrictive policy. That does not favor bonds or equities.
Will central banks be so aggressive? Probably not. But markets inevitably price some possibility. It gives US President Trump a bit of influence over monetary policy—a US retreat from the Gulf would reduce the risk of rate hikes, further attacks increase that risk.
The minutes of the last US monetary policy meeting signaled a further rate hike—though the assessment of the labor market was more positive than recent data might support (if recent data is accurate). The ECB releases the “account” of its last policy meeting, and the Bank of England governor and chief economist speak.
German trade data had weaker import and export growth than eight economists had forecast. Of course, previous data was revised stronger.