After Monday’s Memorial Day holiday, market participants will come back to a steady flow of data and Fedspeak, both of which will be evaluated in the context of Governor Waller’s hawkish speech last week. US data remain hawkish, pointing to robust growth and building price pressures. Manufacturing and business capex continue to accelerate. The preliminary S&P Manufacturing PMI rose to a multi-year high. We now expect the Fed to remain on hold for REMCY26 (versus our prior forecast of one cut in Q4CY26). Incoming Fed Chair Kevin Warsh is likely still motivated to cut rates. However, we expect easing political pressure, elevated inflation, and strong cyclical growth to support a prolonged pause. In US macro data this week we have PCE, Q1GDP 2nd estimates, consumer confidence, intial jobless claims. In dated UST supply, we have $69 BN of 2yr UST auction on Tuesday, $28 BN of 2yr FRN auction on Wednesday, $70 BN of 5yr UST on Wednesday again & $44 BN of 7yr UST auction on Thursday. On the Iran conflict, Trump indicated in a post on Saturday that a peace deal was imminent but we have seen so many slips and misses that we wait for the final announcements from both sides. Our own view is that the ceasefire extension of 60 days is very likely. Hajj is wrapping up right now. Many stay 5–7 days afterward for Tawaf, departures, etc., so Saudi soil remains ultra-sensitive into early June. Iran is unlikely to escalate unless attacked in this window for fear of cratering its Pakistan channel. In US we have the world cup Football starting from 11th June till 19th July during which time the US side might like to have lower security threats. In short term we see Brent cooling down to 90-100 range if the ceasefire does get announced as Trump indicated. We will be releasing a detailed report on the new Gulf situation post the ceasefire including our views on Brent future trajectory. Currently it is too early to give a definitive view in light of many failures on peace initiatives in the past two months. With Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months till end CY26. Good inflation complimented by sustained service inflation implies an elevated core PCE which does not give space for Fed to cut in light of a stable employment situation. We are now bullish on Dollar and see 102 with a stop at 98, CMP is 99.25. In RoW macro data we have Australian CPI on Wednesday & Eurozone individual countries HICP inflation nos on Friday.
