All eyes this week will be on FOMC meet on 7th May. Though we expect the meeting to be a non event, Powell presser could be slightly hawkish. We expect the Fed to keep rates steady and avoid explicit forward guidance about the policy path ahead. Powell is likely to continue to emphasize the inflation side of the dual mandate. This could include repeating that it is the Fed's "obligation" to ensure tariff-driven inflation does not become more persistent and that sustainable maximum employment requires price stability. The signal will be that the labor market needs to weaken for the Fed to contemplate cuts. Our own view is that Fed might have to change it’s focus to employment mandate by June NFP nos because we believe we might be seeing sub 75k nos on monthly NFPs by then. Hence our base case is still a total of 75 bps cut in REMCY25. In US macro data, ISM services for April on 5th May is the key data point to be watched. We expect it to come at 50.5 lower than March's 50.8 but higher than current consensus of 50.3. In trade balance data, we expect the trade deficit widened to $137bn in March from $122.7bn in February. Non farm productivity likely fell to -.7% mirroring the fall in GDP and unit labor costs likely rose to 4.2% in Q1 from 2.2% in Q4. In rest of the world events, we expect a dovish BOE cut of 25 bps in it's 8th May meeting. A combination of lower energy prices, higher sterling and a lower starting point for the Bank’s inflation forecasts suggests downward revisions to the Bank’s CPI profile. We expect a total of 100bp of rate cuts, one 25bp cut per quarter, resulting in a terminal rate of 3.50% by early 2026. In Europe, though last week nos of HICP and service inflation were higher than expected, we continue to believe that ECB will focus more on the adverse impact of tariffs than 1-2 months of higher cpi readings. Hence our terminal rate for ECB is now 1.5% against current rate of 2.25%. Canada labor data might show a rebound to 25k in April from -33k in March but this is likely to be short lived as tariff fears are proving to be more consistent from across the border. In UST auction supply, we have 58 BN USD supply of 3 year notes on Monday, 42 BN USD supply of 10 year notes on Tuesday & 25 BN USD supply of 30 year bonds on Wednesday.
