OIL PRODUCTS: Oil Products End of Day Summary: Diesel Cracks Lose Ground

This week's FOMC decision release is setting up to be unusually uncertain for a meeting in which there will be no change in actual rate policy. 

• As we wrote in our Analyst Outlook for the Fed Preview (link), overwhelming consensus is that the "Dot Plot" medians for 2025-2026 will be unchanged from December's edition - so still showing 50bp of cuts this year (3.9%) and 50bp next (3.4%).
• That's not a surprise, with FOMC participants seen as holding their rate views steady as they weigh the risks of higher inflation vs weaker growth/employment amid major government policy shifts.
• What is surprising to us is that there is a split opinion on the direction of the shift in the dot distribution with many analysts seeing risks tilted toward it moving lower - in other words, a dovish shift in the dots is expected, even if this doesn't translate into a change in the medians themselves. We go through various opinions in the subsequent two notes (excerpted from our Fed preview).
• We would have expected more analysts to place more weight on continued stubbornly high inflation readings, the prospect of higher goods inflation under tariffs, increasingly "in no hurry to cut" commentary from FOMC participants, and the passage of time, in eyeing a drift higher in the dot distribution, for 2025 at least. We provide more detail on this in our Fed preview.
• Our Policy team cites multiple ex-staff/FOMC participants as pointing to current members eyeing 2 or, if not, fewer cuts for 2025 in the Dot Plot as well ("MNI: Fed SEP To Show 2 Or Fewer Cuts, Two-Sided Economy Risks").
• Instead, many analysts appear to believe that FOMC participants will be expressing greater concern over growth than inflation, and/or leaning into market pricing which is between 2 and 3 cuts.
• In the few outright calls for changed 2025-27 medians we have seen, one analyst (Citi) expects an outright move lower in the median (3.6% for 2025), while two (Barclays, UBS) see one cut removed from the rate cut path through 2026 (4.1% median for 2025).

• The Euro was a beneficiary on Monday as Germany's parliament approved plans for a massive spending surge, diverging from prior fiscal conservatism in an attempt to revive economic growth and scale up defence spending. EURUSD trades in close proximity of recovery highs, currently located at 1.0955.
• Spot rising above the bull trigger at 1.0947 strengthens the current uptrend and signals scope for a move towards pivot resistance at 1.10 and a more notable cluster of medium-term resistance around the 1.12 mark.
• Tuesday’s session was categorised by a swift reversal lower for the major US equity benchmarks, which prompted Aussie to be among the weakest in G10, allowing AUDUSD to erase around half of yesterday’s strong rally. Key resistance at 0.6409, the Feb 21 high, continues to cap the topside. Clearance of this hurdle would strengthen a bull cycle and confirm a resumption of the uptrend that started Feb 3.
• Weaker risk sentiment knocked Cross/JPY off the overnight highs, however, USDJPY trades close to unchanged as we approach the APAC crossover. It is worth noting we have the Bank of Japan tomorrow and so positioning dynamics may have affected price action today. In contrast, and with the SNB decision not until Thursday, the Swiss Franc is the strongest of the major currencies. USDCHF is 0.5% lower on the session, and will focus on 0.8736, the December lows. To highlight USDCHF’s vulnerability to a further correction lower, we would highlight that the pair remains 1.65% above the Nov 06 US election lows, located at 0.8620.
• The Bank of Japan kicks off a busy economic calendar on Wednesday, which culminates with the March Fed decision and release of its summary of economic projections. Final February Eurozone inflation readings and its additional details are also scheduled on Wednesday.

• ESTR ECB-dated OIS was relatively little changed today, only drifting up to 1bp lower for late 2025 and early 2026 contracts, with an intraday slide in crude oil futures and broader equity weakness putting downward pressure on implied rates.
• It leaves 13.5bp of cuts priced for the Apr 17 decision, building to a cumulative 47bp of cuts in for 2025 from current levels.
• Our sense from this morning's MNI Connect event with Bank of Finland Governor Rehn (who we view as an important barometer of the median Governing Council view, often striking a centrist/dovish leaning tone) is that the bar to him not voting for a cut in April is quite high.
• Today’s data saw German ZEW expectations beat already elevated expectations for its highest since Feb 2022 but the current situation disappointed. The Eurozone trade surplus meanwhile was slightly larger than expected but there continues to be little appetite for increasing imports of manufactured goods amidst high uncertainty.
• Tomorrow sees Eurozone final HICP inflation for February and plus labour costs for Q4 both at 1100CET/1000GMT. There are also multiple appearances from Centeno, de Guindos (x2), Villeroy and Elderson which could leave a net dovish tone. Guindos told the Sunday Times that whilst much is still uncertain about European defence spending, “it will likely be positive for growth and have a limited impact on inflation.”