Economic Update

Oil prices rise as Trump’s deadline looms

Oil prices moved higher following developments over the weekend and into Monday. The extraction of downed aircrew from Iran, alongside further US and Israeli strikes on Iranian targets and associated proxies, has sharpened market focus on the US‑imposed ceasefire deadline.

Iran has shown little indication of de‑escalation despite sustained damage to military assets, infrastructure, and personnel. Markets now face a familiar question set: what happens if the deadline passes without agreement, and whether the US follows through on its threats or extends the timetable once again. A failure to reach a ceasefire could drive further upside in oil prices, dampen risk appetite, and lend additional support to the USD.

Campaigning for UK local and regional elections starts in earnest

Recent UK economic news continues to send mixed signals. Pockets of resilience in retail activity contrast with ongoing weakness in the labour market and industrial output. With the new tax year underway, businesses now face incremental cost pressures from higher taxes and wage increases, which risk undermining hiring intentions and raising the probability of further layoffs. Added to this, elevated energy prices linked to the Middle East conflict continue to weigh on the domestic outlook.

Political uncertainty also remains elevated. Weekend polling displayed a wide divergence in support for Reform, ranging from parity with the major parties to double‑digit leads — underlining the volatility in voter sentiment. Campaigning for local and regional elections gathers pace this week, against the backdrop of a six‑day junior doctors’ strike. These dynamics pose additional challenges for the government and could reignite questions around Prime Minister Starmer’s leadership.

With Parliament still in Easter recess until Monday and a light domestic data calendar, external developments are likely to drive GBP direction in the near term, in my view.

US labour market rebounds as February distortions unwind; PCE and CPI in focus

March’s US non‑farm payrolls report surprised materially to the upside, with 178k jobs added, nearly three times consensus expectations, as weather‑related distortions from February reversed. The unemployment rate eased back to 4.3%.

However, the details were less uniformly supportive. Labour force participation slipped to 61.9%, annual wage growth slowed to 3.5%, barely outpacing inflation, and underemployment rose unexpectedly. The market reaction proved short‑lived, with little impact on medium‑term rate or USD expectations. Adding to the mixed picture, March’s services ISM undershot expectations, with the employment component at its weakest level since December 2023.

Geopolitical developments will likely dominate sentiment this week, but several key data releases still matter. Thursday brings personal income and spending data for February, including the core PCE price index, alongside final Q4 GDP figures. Friday’s March CPI report is likely to attract the most attention, with the potential to highlight renewed inflation risks alongside softer activity data. That combination would normally weigh on the USD, although heightened geopolitical uncertainty may limit any meaningful repricing.

Euro Area energy concerns grow, even as Spain continues to outperform

Energy supply concerns are rising across parts of the Euro Area. Jet fuel rationing has already begun at several airports in northern Italy, raising the prospect of broader logistical challenges as summer demand approaches. These issues, combined with the sharp rise in oil and gas prices, risk intensifying inflation pressures across the region.

This creates a difficult backdrop for the ECB, which may face trade‑offs between containing energy‑driven inflation and protecting already fragile growth. Against this, Spain continues to stand out. Employment has reached a record 22 million, reflecting a strong post‑2024 recovery supported by reconstruction activity and policy stability. The contrast with ongoing structural challenges in Germany, France, and Italy remains stark.

EUR upside appears limited, particularly if upcoming industrial production data from Germany, Spain, and Italy fail to deliver supportive surprises.

Will the CAD and MXN fall again this week?

Canada releases its March employment report on Friday. Markets expect a further rise in the unemployment rate alongside a rebound in jobs following February’s weather‑related disruptions. The combination could still undermine the CAD, particularly with recent data showing the services economy contracting for a fifth consecutive month. A move toward USDCAD 1.40 looks increasingly plausible, in my view. While increased defence spending among NATO allies may offer longer‑term support, any meaningful FX impact is likely to take time.

For the MXN, recent civil unrest linked to agricultural protests has disrupted transport routes in Mexico City. Inflation concerns also persist ahead of March CPI data on Thursday, with any upside surprise complicating Banxico’s easing intentions. Meanwhile, February industrial production, due Friday, is expected to remain weak following a very poor January. Taken together, risks for the peso appear skewed to the downside over the remainder of the week.