Iran – Deal or strike
US military presence around Iran continues to increase as negotiations appear to stall, lifting market-implied odds of a potential strike. The key uncertainty remains the scope: a targeted “decapitation” strike against senior leadership, or broader action including nuclear facilities. Tehran remains unwilling to accept limits on its ballistic missile program or support for regional proxies, narrowing the diplomatic path. Any US move would likely aim to be quick and contained to avoid sustained disruption to oil prices. A rapid and decisive operation could compress the geopolitical premium, but a broader escalation would risk a more persistent repricing across energy and risk assets.
UK – Cooling jobs, sticky prices
Recent UK data point to a gradual softening in the labour market. Unemployment rose to 5.2%, 10 basis points above Bank of England projections, while private sector regular pay eased to 3.4% 3M/YoY, broadly in line with expectations. Inflation, however, remains less cooperative. While headline CPI eased, services inflation printed 30 basis points above the Bank’s forecast, underscoring persistent domestic pressures. With two cuts priced this year and roughly 80% probability assigned to March, attention turns to communication. Catherine Mann has shifted in a more dovish direction, focusing on labour weakness. If Bailey follows, a March cut becomes the base case. Still, upcoming data will be decisive for the next decision.
US – IEEPA down, fiscal implications
Last week the Supreme Court ruled 6–3 against the administration’s use of IEEPA to impose tariffs, declaring them illegal going forward, while refraining from issuing a decision on refunds, despite estimates that more than USD 100bn of collected revenues could ultimately be subject to claims. Trump initially indicated the administration would pivot to other sections such as 232 and 301 to maintain a 10% global tariff floor, but over the weekend raised the proposal to 15% for 150 days. The ruling weakens the administration’s negotiating leverage, as many trade arrangements concluded under IEEPA are now de facto null. In practice, this implies a lower effective average tariff rate and reduced near-term tariff revenue, widening the fiscal deficit at the margin while simultaneously increasing policy uncertainty. The market reaction was contained and largely priced in: the USD weakened by around 0.4%, 30y Treasury yields rose 4 basis points, swap spreads narrowed and equities moved higher, consistent with expectations of a softer near-term tariff path but greater medium-term uncertainty.
Algebris Investments’ Global Credit Team
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