With the Fed in their self-imposed blackout period, a few inflation related US economic data will get a chance to do the talking ahead of the March 18th FOMC meeting. Of particular note will be the inflation data, namely Wednesday’s CPI report for February and Friday’s core PCE reading for January. But the highlight of next week might be Iran war. The Iran War is a new source of uncertainty for the economic outlook. We believe Brent prices can breach $100/bl levels next week as there is no off ramp from either Iran or Trump. For TACO trade to start and hostilities to end, US equities need to fall at least 5-10% more from Friday's close of 6740 or Brent needs to top $120/bl levels. Retail gasoline prices rose more than 30 cents per gallon this week according to AAA, which should put a dent on consumer spending. That said, the share of energy goods spending in total personal consumption is now around historical lows of ~2.0%. US Strategic Petroleum Reserve currently holds over 400 million barrels of crude oil, which could alleviate spot price pressure should Trump chose to use it. But Trump seems inclined not to use it for now. In US macro data, we have Feb CPI which we expect at .33% MoM for headline CPI & .24% MoM for core CPI. Supercore CPI inflation likely moderated in February, with airline fares slowing sharply following extreme strength in January. In other US macro data this week, we have PPI, Univ of Michigan, durable goods orders, trade balance & personal income & spending. In dated UST supply this week, we have $58 Billion supply of 3yr USTs on Tuesday, $39 Billion supply of 10yr USTs on Wednesday & $22 Billion supply of 30yr USTs on Thursday. On Fed policy front, we believe Fed might maintain status quo till Powell is Fed Chair followed by 2 rate cuts of 25 bps each in June & Sep as Kevin Warsh takes over as Fed Chair. We see markets more focused on Iran events in short term and Feb CPI data might not be market moving to an extent. We remain bearish on risk assets and bullish on Crude prices in short term. In European macro data this week, we have German factory orders, Euro Area Sentix survey & German industrial production. In UK, we now see 2 cuts of 25 bps each in April & July taking terminal policy rate to 3.25%. We have Jan GDP data for UK expected to be around .2% MoM.
