In addition to potential developments in the Middle East, market participants will focus closely on Wednesday’s March FOMC meeting. Regarding Iran events, as we wrote on 22nd Feb 7th March & 12th March, the geopolitical risk premium in crude prices is here to stay. We now see a range of 85-150 for the next 1 month on Brent. Even in a best-case basis, the geopolitical risk premium of $15-20 might always remain embedded to the fair value of $65 for Brent. On Fed event, we expect the FOMC to leave rates unchanged at their March meeting. Communications are likely to emphasize optionality, with risks increasing to both the inflation and employment mandates. Inflation data have surprised on the upside, and forward-looking signs of price pressures are emerging. Growth and labor data have been more mixed, but sharp weakness in the most recent employment report and some weakness in credit markets will likely keep officials focused on downside risks.Although market is currently pricing in only 23 bps of cut for REMCY26, we still see possibility of 2 cuts of 25 bps each in June & Sep when Kevin Warsh takes over as Fed Chair. This gives us an opportunity to put on steepeners around 25 levels in 2*10 US SOFR for an eventual target of 40 with stop loss at 15 levels. In US macro data, we have PPI, initial jobless claims, industrial production, pending home sales. In dated UST supply, we have $13 BN of 20year auction on Tuesday & $19 BN of 10year TIPS auction on Thursday. In RoW events this week we have ECB, BOE & BOJ meeting on 19th March & BOC meeting on 18th March. ECB is likely to be on hold. Financial markets are currently pricing around 47 bps of hike by Dec’26. But we maintain our view that the ECB will keep rates on hold in CY26 though this view is based on an inherent assumption that events will unfold in a way that pushes Brent crude oil and Dutch TTF natural gas futures curves down to levels similar to prior to the conflict, and therefore the impact on the real economy will be limited. On BOJ front, we expect policy rate to be left unchanged and rate hike policy to be maintained, while keeping a close eye on situation in Middle East. BOJ looks set to hike by 25 bps by June and possibly another 25 bps by Dec provided Takaichi’s reflationary thoughts do not stop Ueda from rate hikes. JPY looks set to test their June’24 lows against USD around 161.7. We can expect verbal interventions at current levels too, but actual intervention might not happen before 162. On BOE front, BOE os likely to remain on hold in the 18th March meeting. We maintain the view that the MPC will want to cut further towards the middle of its view of neutral territory (around 2-4%), and view cuts as most likely to occur in April and July 2026. But markets currently have priced out the two cuts and are now pricing in a 25-bps hike by end CY26 which looks stretched to us. On BOC front, we expect the Bank of Canada to hold the overnight rate target steady at 2.25% when the Governing Council meets March 18. We think the BoC will mostly read through near-term energy-induced inflation and remain focused on slack in the economy.
