Israel Breaking News! European Central Bank Makes Emergency Statement! Japan and South Korea Take Sudden Action!

The situation is still grim!

On the afternoon of March 24, Beijing time, according to the latest news from Fox News, an alarm sounded in Tel Aviv, Israel, and more Iranian missiles were coming. A building in Tel Aviv was damaged, shrapnel fell in several areas, and paramedics rushed to the scene. The casualties are currently unknown. At the same time, the Israel Defense Forces issued a statement on the 24th saying that Israeli search and rescue forces were going to several locations in southern Israel where attacks were reported. The statement asked people not to gather in these locations.

According to CCTV news, on March 24, local time, Japanese Prime Minister Sanae Takaichi said at a cabinet meeting on the situation in the Middle East that the national oil reserves will be released from March 26. In addition, Sanae Takaichi also said that the “joint reserve of oil-producing countries” stored in Japan by Middle Eastern oil-producing countries is also expected to begin to be released in March.

At the same time, the South Korean government announced the official implementation of the “tail number restriction system” for official vehicles of public institutions from 0:00 local time on March 25 to strengthen energy-saving measures. This is the first time in 15 years that South Korea has implemented this measure in the public sector since international oil prices exceeded $100 per barrel in 2011. In addition, the trend of the won against the US dollar reversed, and Reuters reported that the National Pension Service (NPS) of Korea is conducting strategic hedging operations in domestic and foreign currencies.

ECB Governing Council member Vujcic said officials will soon know if action is needed. The ECB will get a lot of new data and news in April, and it is difficult to say how close it will be to stagflation, and the risk is moving in the direction of stagflation. In the face of stagflation risks, the ECB must remain vigilant. If a rate hike is needed, it’s best to start with small actions.

Japan and South Korea took action

The Japanese government said it will begin releasing crude oil reserves worth about 540 billion yen on Thursday, equivalent to a month’s supply. The Japanese government will release crude oil reserves from 11 locations across the country.

Economists at HSBC said the Bank of Japan is closely monitoring wage and price trends brought about by the war in the Middle East. Preliminary wage negotiations show a significant increase in wages in Japan, but real wages are still being suppressed by inflation, which is now complicated by the energy shock in the Middle East. This could disrupt the wage-price dynamics expected by the Bank of Japan.

HSBC expects the Bank of Japan to raise interest rates by only 25 basis points in July this year, but the protracted conflict in the Middle East may tighten policy ahead of schedule or increase pressure for further action. This puts the Bank of Japan in a familiar predicament: raising interest rates too early could hurt fragile economic growth, vice versa, could hurt consumer confidence, and would come under scrutiny from the United States if the yen depreciates excessively.

In South Korea, on the afternoon of March 24, news came out that the Korea National Pension Service was conducting strategic foreign exchange hedging operations. At noon, the South Korean government announced that it would officially implement the “tail number restriction system” for official vehicles of public institutions from 0:00 local time on March 25 to strengthen energy-saving measures. Official vehicles of public institutions will be restricted by days according to the tail number of the license plate, and vehicles for the disabled, vehicles with pregnant women and infants, electric and hydrogen vehicles, etc. will be excluded. For the time being, civilian vehicles are mainly voluntary, but if the energy security warning is further raised to the “alert” level, the government will consider expanding it to mandate, which is expected to involve about 23.7 million vehicles.

The impact on the market enters the next stage

Eastspring Investments said that inflation in major global economies and Asian economies is expected to rise by an average of 0.4 percentage points due to the impact of the Iran war. Rising energy prices are likely to gradually affect central banks’ inflation expectations.

While most Asian economies are unlikely to cut interest rates in the short term, policy tensions are likely to increase over time. On the equity front, further corrections are expected in the stock market as risks are shifting from inflation to growth. In addition, volatility in oil prices could lead to divergence in industrial production in Asian manufacturing economies, although AI-driven demand supporting technology exporters should remain strong. In the afternoon, Nasdaq futures continued their losses, falling 0.8%, and S&P 500 futures fell 0.72%. European stock market futures indexes also fell across the board.

Citadel Securities said that the impact of the Middle East conflict on the market is entering a new phase, and investors are beginning to shift their attention from the initial inflation shock to the blow to global economic growth. Strategist Frank Flight said that the shift to weaker economic activity and “demand destruction” could be positive for longer-term inflation-adjusted bonds. At the same time, he said that dollar call options provide “attractive asymmetric” protection against further escalation of the situation in Iran. Flight warned that any de-escalation will not reverse “some of the lasting damage” to global supply chains.

According to Reuters, the war has become the largest impact on energy supplies in history after Iran’s actual blockade of key Strait Hormuz transportation lanes and attacks in the Middle East caused long-term damage to production infrastructure in many countries.

Japan’s Vice Minister of Economy, Trade and Industry Takehiko Matsuo said that the release of a record 400 million barrels of strategic crude oil by members of the International Energy Agency (IEA) is still not enough to calm market tensions. As an importer, Japan can release about 80 million barrels of crude oil, second only to the United States’ 172 million barrels.

(Article source: Brokerage China)