Last week, FOMC held rates steady, in line with our expectations. Chair Warsh’s continued dovishness, coupled with a muddled explanation of the Fed’s reaction function raised concerns around the Fed’s inflation credibility. But in terms of US macro data, we continue to expect core PCE inflation to gradually decelerate in coming months due to easing tariff effects, residual seasonality, moderating wage growth, and the upcoming BEA methodological revisions, which will likely quell concerns over inflation risks as well as the Fed’s credibility as an inflation fighter. This week US has several macro data points such as July NFP, ISM manufacturing & services, JOLTS and IJC. We expect headline payroll growth accelerated to 125k in July from 57k in June while UR inched higher to 4.3. We believe labor market remains resilient for now. Policymakers have remained sanguine about labor markets lately, with some even pointing to signs of strengthening. We expect stable labor markets will keep the Fed focused on inflation risks where we expect moderation from Sep after revised BEA methodology. Hence, we expect Fed to remain on hold for REMCY26. From a market perspective, our 1yr-1yr US SOFR 1st half risk risk was received at 4.15 and another half risk was received at 4.25 last week. This week’s high was 4.2575 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. In Row data, we have Canada employment nos, German industrial production & German factory orders. On the middle east conflict, Our own view is that we are very close to a deal between US & Iran on SoH (Strait of Hormuz) operations. We believe a final solution lies in terms of a jointly coordinated Iran-Oman toll which might collect charges for specific services rendered, such as navigational safety, vessel traffic management, security escorts, emergency response, and environmental protection. The charges will be collected in dollars.
