FRANCE: May Avoid A Moody's Downgrade After Hours

German curve bear flattening has resumed this morning, with missile and drone strikes still prevalent in the Gulf region and ECB’s Kazimir noting that a rate hike may come sooner than previously thought. 5s30s is down over 3bps to 92.5bps, though remains comfortably above Friday’s 89.5bp close for now.

• Crude oil futures are up over 4% despite reports that the IEA has proposed a stockpile release of 300-400mln barrels (according to Bloomberg).
• Meanwhile, the implied probability of at least one ECB hike through the end of the year has risen sharply following Kazimir’s comments. That sees Schatz yields up 9bps to 2.34%. It’s worth remembering that Kazimir’s hawkish rhetoric was fully in fitting with his usual stance.
• 10-year yields are up 6bps to 2.90%. Focus remains on Monday’s 2.93% high.
• Bund futures are -62 ticks at 126.63. Cumulative volumes of 400k are below Monday/Tuesday’s levels, but remain very healthy. Today’s pullback underscores the corrective nature of recent gains. The next key support is the Dec 22 low at 125.90.
• 10-year EGB spreads to Bunds have widened amid weak European equity performance and hawkish ECB repricing. 10-year BTP and GGB spreads are up 4bps.
• Germany and Portugal are selling bonds this morning. 

Politico reports that, according to a person close to the White House, "The Trump administration believes it can withstand a brief spike in oil prices — for as many as four weeks, [...] before the political hit does lasting damage." The whipsawing price of oil over the past 12 days has led the White House to think that price spikes are temporary, and therefore manageable, with the source telling Politico, "They have three to four weeks “where they can ride out what they need to” before oil prices become a more durable political problem."

• The source said, “Assuming the economy continues to turn around once the active part of the war is concluded, you’ll have the whole summer from May through August to ride the turnaround.”
• The article notes that "the administration spent much of Monday [9 March] trying to soothe spooked traders worried about the disruptive impact of a prolonged war on oil supply chains". President Donald Trump said in a CBS interview that the military operation "is very complete, pretty much".
• Markets took this as a signal that the war would not end up being a protracted affair, despite Trump on the same day saying, "We've already won. But we haven't won enough."
• Speculation late on 10 March that Iran was looking to lay mines across the Strait of Hormuz is the sort of worst-case scenario for oil supplies that could upend the White House thinking outlined in the Politico article, given its potential for curtailing flows in the region over the long term (alongside the potentially-lengthy lead time in getting oil facilitites in the Gulf back online and producing).
• For the MNI Political Risk team's views on the prospects of a short vs. long conflict, see MNI POLITICAL RISK-Iran: Short Campaign Or Long-Term Conflict

MNI discusses potential changes to the BOJ's baseline scenario. On MNI Policy MainWire now, for more details please contact sales@marketnews.com