Absent any material breakthroughs in the US Iran negotiations this week, the data docket should be the main focus – namely, Friday’s April Nonfarm Payrolls. In FOMC meet last week, despite no change to the forward guidance language, an easing bias on interest rate policy appears to have softened. US economic data remained solid last week, equity indexes set new records, and the hyperscalers renewed their capex commitments. On Iran conflict itself, it seems to be settling into a low conflict long duration event like the Russia Ukraine war. Unless either party blinks, the stalemate is likely to continue. Inventories are meanwhile dwindling down fast and demand destruction has started happening in countries where price adjustments were made in response to crude price rise. We see a worst-case scenario of crude oil jumping to $150 in end May-July, before settling to $110 in 4Q. The baseline scenario leaves oil at $100 this quarter and $80 in 4Q26. This could cut an additional 1% from global GDP and raise global inflation by a further 1.2%. As a net energy exporter, the US will fare better than a number of other countries. In US macro data this week we have ISM services, JOLTS, trade balance & new home sales. On NFP itself we expect 75k headline and unemployment rate st 4.2%. There is no dated UST supply this week. We continue to expect a lone 25 bps cut later this year under incoming Chair Warsh, but the case for easing is likely to depend more on cooling inflation rather than labor market stress. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.70 (chart above) where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%. In Eurozone we continue to expect 2 hikes of 25 bps each in June & Sep as inflation expectations are rising sharply. Euro area HICP inflation jumped in April to 3.0% y-o-y and 3y ahead median inflation expectations rose notably by 0.5pp to 3.0%. In Eurozone data this week we have Sentix, ECB wage tracker, German factory orders & German industrial production. BOE we now expect a single rate hike of 25 bps in July and then a status quo for REMCY26. We think the hike will ultimately be more than reversed, and see two rate cuts in H2 2027 (to 3.50%, which is likely close to neutral). We also have RBA rate meeting this week on Tuesday where we expect RBA to hike by 25 bps to take the policy rate to 4.35%.
