Last week, the US EIA aggressively cut its 2025 global oil growth demand to 900kbpd and 1mbpd for 2026 citing an occluded economic outlook, uncertainty in international trade and the increased supply from OPEC+. We will look more closely into how the OPEC and IEA report stack up in tomorrow’s missive, but for now it is sufficient to say that OPEC’s monthly contribution paints a much kinder outlook to oil proceedings. Despite its own members being allowed to bring more back to the market, the reason being yet again highlighted yesterday by Kazakhstan’s continued cheating, the cartel only trimmed 100kbpd of oil growth for 2025 and 2026 to 1.3mbpd. One might shrug a shoulder and declare ‘so what’, it is normal modus operandi, but when taking into account the recent Goldman Sachs forecast of oil demand growth being only 500kbpd, it does initially smack of at best a head-in-the-sand outlook and at worse propaganda.

Oil prices benefit a touch this morning from another shimmy from The Donald. “I’m looking at something to help some of the car companies,” he told a gathering in the Oval Office. This concession is offered as a buffer while auto manufacturers repatriate from Mexico and Canada. Meanwhile as the current tsunami of tariff influence subsides going into the long Easter break, equities will actually get to look at fundamental performances as quarterlies continue to roll out. Banks are a particular point of sensitivity as always, but drug companies and their international affiliates will make for a good watch as the pharmaceutical industry is becoming a point of interest to the Trump ministrations of tariff scrutiny. None of this is oil-sensitive, but the flat price of our market cannot resist to go where the bourses of the world instruct.

Who would be a central banker?

Unless the current US Administration is living under a rock or retired early to a bomb-proof shelter, it could not have failed to notice the international consternation being caused in this planet’s economic system and to those that push and pull on the levers to keep us all financially viable. At the start of the week, one the US’ favoured trading allies, Japan, is going through throes of policy and forward interest rate decisions that are solely the responsibility of tariffs. Facing Parliament on Monday, the Prime Minister, Shigeru Ishiba stalked a ponderous path when addressing the US imposition of Japanese tariffs. The threatened 24% import duty, now given a 90-day stay of grace, has served Mr Ishiba a portion of time in which he can indulge by plotting a route of mutual appeasement. Indeed, when asked about retaliation, the Prime Minister’s reaction gave an insight into how Japan will play the long game which includes avoiding antagonising Washington. “I don't think retaliatory tariffs would serve our national interests when we are hit by surging energy and food prices.” He further explained that although Japan would not compromise on how it invoked reciprocity, rushing into decisions that might ultimately change was not good policy. On the same day, Bank of Japan Governor Kazuo Ueda also warned on how Japan’s global economic outlook is being changed due to uncertainty emanating from Washington, and that any impact on its economy and how reaction might form would entirely depend on US tariff policy developments. The Yen is already flying against the US Dollar, and at Y143, is the highest it has been for two years. At present, this might be obliging the US President who has made no secret of his desire to see the US Dollar devalued in terms of trading, but for the BoJ it causes problems. The higher the Yen proceeds in its Dollar pairing the narrower the path becomes for interest rates to be raised which will be problematical if inflation were to drift much beyond the hallowed 2% target yearned for by more than just the current central bank governor in Japan.

Within Europe, by default or design it does not matter, the conservative approach to tariff retaliation has had some positive side effects. Keeping reciprocity low-key has meant the bloc’s currency has had great benefit from the swooning US Dollar. The world’s most important currency pairing is trading at $1.14 in favour of the Euro, which is the highest level it has been since January 2022. The calmer attitude within Europe and the promise of some Eur500 billion spend from Germany on defence and a total of up to Eur1 trillion in overall stimulus makes for an arena in which US investments cannot ignore when finding a destination for monetary flight. Whereas the US economy battles with the prospect of tariff-induced inflation, the slow reaction within governments of Europe and associated economies such as the UK means producers will not be under such pains in transferring increased trading transaction costs onto customer bases. European economies and growth have been asleep since feeling the brutal withdrawal symptoms after the weening from addictive, cheap Russian energy. In 2024 GDP growth in the European Union was 1%, in the Eurozone itself it was 0.9%. While these appear miserly when compared with China’s 5% and the US 2.8%, as the ECB predicts much the same growth for 2025, monies that are seeking no frills or thrills might just stay interested in the Old World. Given the strength of the common currency, and the likelihood of controlled inflation, the European investment prospectus is to receive an even greater sweetener from the European Central Bank in the near future as it approaches its rate decision this Thursday. It appears that a 25-basis points cut is baked-in, but there are plenty of economists predicting a repetitious lowering in June as well.
At the Economic Club of Chicago tomorrow, Fed Chair, Jerome Powell will deliver his economic outlook and there will not likely be unforeseen benefits, or at least an ability to be somewhat removed, at present to the US economy. A usually reserved orator, Powell rarely gives much to the awaiting masses, but being non-committal might not be an option. The wear and tear on the psyche of markets is tangible by losses and swings, particularly US investors, but is also running rings around those of us that try to engage in market foresight. Even the Bond Gods of New York cannot make their minds up on US Treasuries and the only yield available is the derivation of the word to just give up. Powell is a professional man; he would not admit it, but there is no love lost between he and the bellicose one of Pennsylvania Avenue. The ECB and the BoJ are working with governments in a cohesive manner, we should not expect such a state to exist in the US. Time and patience can be played in Tokyo and Frankfurt, not so in Washington. Hopefully the White House can resist barracking whatever might emerge from Chicago tomorrow, but the bait might just be too tempting. If a full-blown feud breaks out between the US Government and its central bank the consequences are too dire to consider. Indeed, thereupon watch for investment centres such as Europe and Japan adjusting policy because an untrustworthy trading partner cannot stick to the rules and watch the revolving doors spin as investors make for a US Dollar exit again because who wants tyranny in charge of the world’s reserve currency?

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