Five Things You Need to Know to Start Your Day: Americas

Good morning. Markets are digesting diplomatic efforts to stem tensions after Iran attacked Israel over the weekend. Stock futures are highe [View in browser]( [Bloomberg]( Good morning. Markets are digesting diplomatic efforts to stem tensions after Iran attacked Israel over the weekend. Stock futures are higher while oil and treasuries are down. Metals have spiked amid new sanctions on Russia while Apple is seeing a slump in smartphone shipments. Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Diplomatic efforts The major international development over the weekend was of course Iran’s missile and drone barrage against Israel, which you can read detailed analysis of in today’s [Big Take](. Fears of continued escalation have been tentatively quelled for now. President Biden reportedly told Israel’s Prime Minister Benjamin Netanyahu the US won’t support a counterattack, while European nations are also calling on Israel not to react with aggression. Iran has said “the matter can be deemed concluded.” That’s ushered in a sense of relative calm for markets on Monday. Oil drops as nerves ease US equities are poised to post a rebound after Friday’s selloff and follow European stocks higher. Oil prices slid, with Brent crude dropping below $90 per barrel, while European gas prices also fell. Treasuries and the dollar slipped as nerves eased. Gold is holding below a record despite [bullish calls](on the precious metal from Wall Street banks including Goldman Sachs. Russian metal sanctions Elsewhere in commodities markets, metal prices rose after the US and UK imposed [new sanctions]( banning deliveries of Russian supplies in an effort to curb President Putin’s war-funding ability. The restrictions, which come into effect after midnight on Friday, have caused prices to spike, particularly aluminum, which surged by a record 9.4%. Russia supplies 6% of the world’s nickel, 5% of its aluminum and 4% of its copper. Apple’s iPhone slump Apple saw the [steepest decline in iPhone shipments]( since Covid lockdowns as Chinese sales flagged amid a resurgence from rivals such as Huawei and a ban on foreign devices in the workplace. The 10% drop in the first three months of the year was worse than projected and is at odds with a broader rebound in the smartphone industry. Coming up… Several financial firms post earnings today, including Goldman Sachs, which reports pre-market, while the economic calendar includes retail sales for March and Empire Manufacturing data. Monday also sees the start of President Donald Trump’s [New York trial]( over the alleged falsification of business records to conceal a sex scandal during his 2016 campaign. What we’ve been reading This is what’s caught our eye over the past 24 hours. - Samsung to get up to $6.4 billion in [US grants for chip plants]( - [Bitcoin ‘halving’](will deal a $10 billion blow to crypto miners - Why everyone in finance is[ getting ripped]( - The UK is reining in inflation faster than the US and [may cut rates firs](t - [Singapore’s Prime Minister]( will step down May 15 after two decades And finally, here's what Joe’s interested in this morning Back during the ZIRP era, when measures of inflation were frequently coming in south of 2%, you sometimes heard economists arguing that we should raise the inflation target. Now you might think this is silly. After all, if the Fed can't get inflation up to 2%, how can it hit 3%. But this isn't exactly the right way to think about it. In theory, a higher inflation target would serve as a signal to businesses to hire and invest at a higher pace, without the fear that the Fed will imminently slam the brakes on the economy, rendering those investments moot. Today of course we're coming at the inflation problem from the other direction. Perhaps the Fed could change its inflation target to 3% or 4% and just declare victory. But following the logic above, that could be risky. If the underlying fear is that the economy is "too hot", then you probably don't want to signal a willingness to let things run even hotter. Furthermore, it might raise questions about how credible the new target is, and so on. But some authoritative macro thinkers are talking about a higher inflation target. [In a Bloomberg Opinion column last week](, Mohamed El-Erian argued that we're in a supply-constrained world and that trying too hard to get all the way back to 2% runs the risk of breaking the economy. He writes: "Rather than maintain a policy reaction function anchored by excessive dependence on backward-looking data, the Fed would be well advised to take this opportunity to undertake a belated pivot to a more strategic view of secular prospects. Such a pivot would recognize that the optimal medium-term inflation level for the US is closer to 3% and, as such, give policymakers the flexibility to not overreact to the latest inflation prints." I've been thinking about this in the context of a [podcast episode that Tracy Alloway and I recorded last week](, talking to a real estate developer who can't get a key piece of electrical equipment that he needs in order to open one of his buildings. Part of the big issue here is that there's this massive state-driven electrification push happening right now (EVs, batteries, etc.) alongside new power-intensive semiconductor fabs and AI datacenters going up. Thus the companies that make gear for connecting to the grid (and various other things) are seeing their orderbooks get slammed. And that's squeezing out small commercial real estate developers (and housing developers and others) who are waiting on their transformers and switchgears and other components. There's a 2021 paper from Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning titled [Monetary Policy in Times of Structural Reallocation](. It argues that inflation, at least in some circumstances, can itself help facilitate the process of major structural reallocation within the economy. The core intuition here is based on standard macro thinking. Even industries that are in structural decline rarely see outright cuts to worker wages. So a higher level of inflation overall can erode the real wages in the losing industries, helping create an inducement for workers to transfer from a fading industry to an industry on the rise, and thus ease supply pressure. Government policy (whether it's wise or not) means we're undertaking a massive effort to re-orient our energy consumption and the underlying infrastructure that provides energy. This is having the effect of creating sustained bottlenecks in the economy, which effect a wide range of downstream industries. So the question is, if we take these shifts (EVs, electrification, new semiconductor fabs, [AI datacenter demand as far as the eye can see]() as a given, how costly is it from both a cyclical and secular perspective, to close that last mile and get the economy in a place where it's running back at 2%? And then depending on the cost, perhaps it makes sense for the Fed to maintain some lenience while the structural reallocation of capital and labor within the economy takes place. Follow Bloomberg's Joe Weisenthal on X [@TheStalwart]( [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Like getting this newsletter? 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