Following a solid April employment report, market participants will focus on the other side of the Fed’s dual mandate with Tuesday’s CPI and Wednesday’s PPI releases for April. On the employment side, the April employment report showed solid gains on headline (+115k vs. +185k) exceeding our expectations of 75k. As a result, Fed officials are likely gaining confidence in the stability of the labor market. Hence, the risks to the inflation outlook appear more pressing at this point. In that context, this week's CPI data for April must be keenly watched. We see core CPI inflation as likely accelerating to 0.29% m-o-m in April from 0.20%, largely due to technical factors associated with rent-related components. Our forecast translates into a y-o-y change of 2.8% up from 2.6% in the previous month. In other US macro data, we have retail sales, PPI, existing home sales & initial jobless claims. US economy seems to be holding well and employment is not a concern currently. With Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months. We still see a lone 25 bps cut in Q4CY26 as an insurance cut under Kevin Warsh as Fed Chair. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.72 where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%. We also like to put on 2*10 US SOFR steepeners around current levels of 22 for an eventual profit target of 40 with stop loss around 14 levels. On the middle east conflict, Iran has said it is reviewing the US’s proposal and Trump signalled optimism about reaching a deal before his scheduled trip to China on 14 May. In Fed related events, Senate is scheduled to vote Monday evening on Kevin Warsh’s nomination. While this could potentially slip a day or two depending on other Senate business, it is almost certain that the vote will take place before Powell’s term as Chair ends on Friday. Warsh would be taking Miran’s place on the Board, while Powell will stay on as a Governor past the end of his term as Chair. In dated UST supply, we have $58 BN of 3 yr UST auction on Monday, $42 BN of 10 yr UST auction on Tuesday & $25 BN of 30 yr US bonds on Wednesday. In RoW data points, we have UK job nos, UK GDP, German Zew survey and Eurozone industrial production.
