By Molly Schwartz, Cross Asset Macro Strategist at Rabobank
More persistent inflation
Yesterday, Iran rejected the US-proposed 15-point plan, instead laying out its own conditions in a 5-point plan;
(1) halt the killing of Iranian officials;
(2) means to make sure no other war is wage against it;
(3) reparations for the war;
(4) an end to all hostilities; and
(5) Iran’s “exercise of sovereignty over the Strait of Hormuz.”
The probability that Washington would accept these terms in exchange for a ceasefire is roughly equal to the likelihood that Tehran would have accepted the original US proposal…zero.
Against that backdrop, the clock on Trump’s self‑imposed five‑day deadline continues to tick down.
The relative calm in markets suggests some investor confidence that hostilities may eventually wind down, however slim that prospect remains. Still, even a “diplomatic” resolution at this stage would carry material costs for both the US and Israel.
We have repeatedly argued that the Iranian regime’s overriding objective is survival; a negotiated outcome that leaves it intact (see Venezuela) in effect constitutes a strategic defeat.
As Michael Every and Ben Picton put it here, “If we see a US and Israeli defeat…Trumpism will suffer both electorally and geopolitically: its grand macro strategy will unravel, to China’s advantage.”
US Press Secretary Karoline Leavitt yesterday announced that JD Vance may be headed for Pakistan on Friday to continue negotiations, but if diplomacy fails, Trump has at least partial backing from NATO.
Mark Rutte said the President was “doing this to make the whole world safe,” and argued that it is “only logical” for European countries to take a couple of weeks to coordinate naval deployments to the Strait of Hormuz following Washington’s request. Not all European leaders are aligned, however, with officials in Germany, Italy, and Spain stressing that “this is not our war.”
Whether Europe views the conflict as its war or not, it is already implicated via the economic channel. Several ECB policymakers spoke yesterday at the ECB and Its Watchers Conference, striking a cautious tone as they assess how large and persistent the inflationary shock from the conflict may be. Kazaks said it remains “unclear” whether rate hikes in April are justified, but warned that risks could intensify if energy prices meaningfully pass through into other components.
Lagarde echoed this data‑dependent stance.
“We will not act before we have sufficient information on the size and persistence of the shock and its propagation,” she said, “but we will not be paralyzed by hesitation: our commitment to delivering 2% inflation over the medium term is unconditional.”
She underlined that April is a “live” meeting. Market pricing of the European OIS curve implies close to 16bp of hikes in April, but nearly 65bp of cumulative hikes by the end of 2026.
Markets, meanwhile, appeared almost numb. Earlier this week, asset prices swung sharply as Washington and Tehran issued conflicting statements on whether negotiations were progressing—or even taking place., with Crude bouncing between $96 and $115.
Yesterday, however, was markedly calmer. US 10‑year Treasury yields traded within their narrowest range since the conflict began, closing around 4.33%, while crude oil settled near $103/bbl.