In addition to Iran war developments, this week’s economic calendar will focus on the inflation side of the Fed’s dual mandate following a solid March employment report. Averaging through the Q1 employment reports, headline (68k) and private (79k) payroll gains are tracking up from their six-month averages of +15k and 52k, respectively. In addition, the Q1 unemployment rate averaged 4.34%, a slight improvement from the six-month average of 4.395%. Hence the employment mandate of Fed looks well balanced for now. On the middle east conflict, the current environment as shifting from a “flow shock” to a “stock depletion problem.” US retail gasoline prices have already increased to close to $4/gallon, but we see a risk of that exceeding $5 if the Strait remains effectively closed by mid-April. In February, the BEA estimated that households spent about $420bn on energy goods at an annualized pace, mostly gasoline, and since then prices are a little less than 30% above their 2025 average. That equates to around $115bn in additional annualized outlays on energy, over half of market’s estimate of the full-year reduction in personal taxes from OBBBA in 2026. In other words, the cost shock will be substantial if prices stay at least this high for an extended period. In US macro data this week we have March CPI, March Fed minutes, ISM Services & durable good orders. We expect the March headline CPI to come at 1% MoM and the core CPI to come at .29% MoM. Strong consumer demand and supply shortages of key materials appear to have boosted consumer goods prices. We forecast a 0.29% m-o-m advance in core goods prices, up from 0.08% in February. With employment holding up and inflation rearing it’s head again in goods inflation, Fed might be on a long pause till Q3CY26. We still expect an insurance cut of 25 bps in Q4CY26 under Kevin Warsh as Fed chair. In UST dated supply this week we have 3yr UST auction on Tuesday for $58 BN, 10yr UST auction on Wednesday for $39 BN & 30yr UST auction on Thursday for $22BN. In RoW macro data this week, we have German industrial production & German factory orders.
