This week is a macro data light week for US. Focus will shift to Fed communications & Chair Powell’s speech at Jackson Hole in particular on 22nd Aug, Friday. While the Chair can still paint a resilient picture for the labor market, the extent of recent downward revisions to payrolls and the potential for that weakness to extend further leave Powell likely to indicate a greater focus on downside risks than he did at the last meeting. This is a 70% probability event which is in sync with Powell indicating that market pricing of 25bps cut in Sep is accurate. Data dependence and a focus on the distribution of risks could be a key message from the Chair. We believe Powell will speak neutral and not try to appear too hawkish or dovish as per his own definition of equilibrium of employment and price stability mandate. This should keep the 25-bps cut in Sep in play with an optionality of 50 bps cut if Aug NFP data disappoints too. We continue to believe in 75 bps cut in REMCY25 and another 50-bps cut in Q1CY26 as the employment mandate of Fed will take priority over price stability mandate. We are tracking core PCE for July at .29% MoM which should be a comfort for doves. We have revised down our Q3 GDP tracking estimate by one-tenth to 0.9% q-o-q ar from 1.0% last week. In UST dated bond supply, there is 16 BN USD supply of 20 year USTs on Wednesday & 8 BN USD of 30 year TIPS on Thursday. On the Russia Ukraine ceasefire discussions, we believe Trump is very close to an actual peace deal with Putin agreeing to a security guarantee for Ukraine from US except that Ukraine wont formally join NATO. In terms of land switches, we believe current frontiers will be announced as de facto international borders. If our assumptions above are correct, we can expect fall in Brent along with natural gas & a risk on rally in equities/crypto. DXY might fall further in such an event as Euro rallies further. In Eurozone, we are seeing long end bond yields rising fast due to impending Dutch pension reforms taking effect from 1st Jan'26. The very long end of the euro swap curve is seeing increased volatility these days and we believe more is still to come. Volatility measures of EUR rates are mostly following a gradual path lower, but the implied volatility of the 30Y over the coming three months is an outlier and has started picking up again this month. The shift from a defined benefit style system to a defined contribution style framework will drive a reduction in the duration of hedging assets- we see this moving from 16.5yrs currently to 11.5yrs. Dutch pension fund activity has been concentrated in the long end and we think that the unwinds here could bring significant paying in the long end. This has driven the 10yr Bund yields from 2.68 levels to 2.78 levels currently over Thursday & Friday. This led to long end UST bond yields also rallying higher. In UK macro data, we expect the July CPI due on Wednesday to come at 3.7% which should keep BOE on a wait & watch mode at least till Nov'25.
