It’s All About the Middle East
April 17, 2026
On a day with very few economic data releases, world financial markets this Friday have been dominated by efforts to end the 49-day-old Middle Eastern war. Known facts are 1) that a 10-day ceasefire between Israel and Lebanon seems to be holding; 2) shipping traffic through the Strait of Hormuz remains very minimal; and 3) President Trump keeps repeating the optimistic mantra that a deal to end the war seems close because Tehran is now willing to accept the demands related to renouncing a nuclear weapons development program. These facts are being overwhelmed through considerable conjecture. It’s fair to assume that Israel abidance of the ceasefire is a reluctant gesture; that the U.S. put very heavy pressure on Netanyahu after Tehran officials made a ceasefire in Lebanon an essential prerequisite to any resumption of talks with the United States; and Tehran officials also remain more extremely reluctant to end all chance of developing a nuclear weapon. Despite Trump’s history of spouting a lot of stuff that ultimately proves untrue, investors continue to give the benefit of doubt to an optimistic resolution of the crisis.
The dollar lost marginal further ground against most currencies overnight. The ten-year U.S. Treasury yields settled back another two basis points, while comparable Japanese, French, Italian and Spanish yields dipped one basis point. Gold (+0.6%), silver (+1.3%) and the price of Bitcoin (+0.6% and a week’s gain of almost 7%) continue to regain their luster. Major U.S. stock indices in pre-open futures trading are up 0.5-0.75%. Euroland stock markets are up similarly despite lower closes in Asia that included losses of 1.2% in Japan, 0.9% in Taiwan and Hong Kong, and 0.6% in South Korea.
Investors reacted with disappointment to comments by Bank of Japan Governor Ueda that stressed the divergent policy challenges to address upward pressure on inflation but also the risk of a depressant effect on growth from the war. They wanted a more definitive sign that Japan’s monetary authorities are prepared to resume interest rate normalization to curb second-order effects on inflation, but even more immediately. alleviate downward pressure on the yen.
Another special case involves the Indonesian rupiah. While many other currencies have benefited from lessening safe haven capital flows into the dollar, the rupiah is hovering at record lows against the U.S. currency and has fallen about 2% this week and over 6.0% since the middle of last August. A review of Indonesian monetary policy is scheduled for next Wednesday. Fiscal stimulus, depleting foreign exchange reserves, and six 25-basis point cuts by Bank Indonesia during the year through last September are the backdrop to the upcoming central bank policy review. Investors would like to see action to help buttress Indonesia’s currency but suspect that the interest rate instead will be left unchanged at its current 4.75%.
Chinese foreign direct investment in the first two months of this year was 5.7% less than a year earlier. That compares with a 9.5% decline in 2025.
Even before the start of the latest Middle Eastern war on February 28, Euroland experienced its smallest seasonally adjusted trade surplus in 7 months during February. Such printed at EUR 7.0 billion, down from EUR 12.8 billion in January and EUR 10.3 billion per month in the final quarter of 2025. The unadjusted surplus in February of EUR 11.5 billion was half the size of the year-earlier surplus and resulted from a deeper drop in exports of 6.7% versus a 2.2% decline of imports.
Euroland also experienced smaller current account surplus in February (EUR 24.9 billion) than January (EUR 40.4 billion. As a percent of GDP, the current account surplus equaled 1.8% over the past 12 reported months, down from a 2.4% ratio in the previous one-year period.
Copyright 2026, Larry Greenberg. All rights reserved.
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