Amidst brighter chances of an interim deal between US & Iran with respect to a memorandum of understanding, investor attention will turn to Wednesday’s FOMC meeting – the first of the Kevin Warsh era. With the transition of Fed leadership, key features of the June FOMC meeting are more uncertain than normal. While initially changes might be more incremental than discontinuous, Chair Warsh has promised “regime change” at the Fed. His press conference will provide his first opportunity to detail his vision for what these changes might look like. We expect a status quo on rates from FOMC with a hawkish FOMC statement watered down by new Fed Chair Kevin Warsh comments in post policy press conference. In US macro data this week, we have retail sales, existing home sales, initial jobless claims & industrial production. Incorporating CPI and PPI data, we forecast core PCE inflation of 0.34% m-o-m in May from 0.23% in April. This would translate into y-o-y core PCE inflation of 3.43%, the highest reading since October 2023. In UST dated supply. we have $13 BN of 20 year UST auction on Tuesday & $24 BN of 5 year TIPS auction on Thursday. To summarise our views on US economy, while markets are pricing in a 80% probability of 25 bps hike by Dec’26 and some more by mid CY27, we expect that Fed is in for a long pause till Dec’26 as employment remains stable and core PCE remains elevated. So, if the 1yr-1yr US SOFR inches up to 4.10-4.15 levels from CMP of 4.00 levels, we like to receive half risk at these levels & another half at 4.25. Stop to this view is 4.35 and TP is 3.80. In RoW events, we have SNB policy decision on Thursday where we expect a stuatus quo. We also have BOE rate decision on Thursday which is again likely a hold though with 2 member now demanding hike vs one last time. While we expect the BoE to raise rates by 25bp in July (to 4.00%), we also see two subsequent cuts in H2 2027 to take rates down to close to neutral level (terminal 3.50%). We also have the BOJ meeting on Tuesday where we expect a 25 bps hike followed by a neutral press conference which might not support JPY. We expect JPY to test May'24 lows of 162.2 and any MoF intervention is unlikely before FOMC meet on Wednesday. In RoW macro data, we have German Zew Survey data, UK CPI and UK retail sales data this week. On the Iran conflict issue, we believe that we are in final stages of an interim deal which could come any time today or tomorrow. Brent prices have cooled down significantly to 87 levels and are likely to test 80-85 levels this week as an interim deal takes place. But in medium term, Brent should stabilise around 90 levels as inventories gets replenished and emergency stockpiles get filled again.
