This week’s economic calendar heats up with the main event being Wednesday’s FOMC meeting. Although Market is pricing in 44 bps of hike in REMCY26 as of Friday close with the July meeting itself having a probability of 36% for a 25-bps hike. We believe it will be a hold in the 29th July FOMC meet as June's inflation data has been lower than estimates. Market based measures of long term inflation expectations are also supported around 2.5%. There has been 30 bps rise across the UST curve since June end which in itself is significant financial tighetning. Hence we believe Fed is on hold for REMCY26. In US macro data this week, we have employment cost index, core PCE (our expectation is at .18% MoM), durable goods orders, Q2 GDP 1st estimate & consumer confidence. In UST dated supply this week, we have $69 BN of 2 yr USTs auction on Tuesday, $70 BN of 5 yr USTs auction on Tuesday again & $44 BN of 7 yr USTs auction on Wednesday. In middle east conflict, our own view is that both Trump & Iran are losing in this war. For Trump, winning Nov house elections is paramount but with gasoline prices above 4$ per gallon, the electorate is unlikely to give him that win. For Iran, beyond 15-20 days, they can’t store oil on ships and then they have to stop their wells which might then take another 6 months to start. So, both sides might actually gain if there is a temporary ceasefire. We believe a temporary ceasefire is imminent and brent prices are likely to cool down to 80-85 levels this week. From a market perspective, our 1yr-1yr US SOFR 1st half risk risk is received at 4.15 and another half risk waiting to get received at 4.25. This week’s high was 4.23 before it cooled down to close at 4.20. We have a profit target of 3.9 and stop loss at 4.4 for this trade. On the FX side, we continue to believe in DXY strength at least till Sep and continue to see JPY and GBP most weak against DXY. This has played out well till now as JPY is now nearing almost 164 levels & GBP is underperforming G-7 FX due to fiscal worries as well. In RoW events this week, we have BOE policy meet on Thursday where we expect a 7-2 hold. We also have the BOJ policy meet on Friday where we expect a hold with 2 dissenters.
