Opinions

Geopolitical headlines are likely to continue to drive financial markets amidst a relatively light economic calendar. President Trump on Friday lauded Iran’s apparent opening of the Strait of Hormuz and signalled that a broader deal with Iran could be reached as soon as the weekend. However, details were unclear given the vague and at times conflicting statements by Iranian government officials and the Trump Administration. The outcome of the Monday talks in Islamabad– should they take place - will set the tone for risk this week. Importantly, investors will be monitoring for signs of improvement in the flow of energy from the Persian Gulf region in the wake of last Friday’s oil price plunge on the back of the aforementioned announcements. As per current data available to us, observed transits of commercial ships through the Strait of Hormuz have come to a halt following a brief surge on Saturday as tensions ratcheted higher after vessels came under gunfire in the waterway and Iran warned against crossings. No crossings were seen today, according to tracking data compiled by Bloomberg as of early afternoon in London. At least 13 oil tankers turned back toward the Persian Gulf on Saturday, abandoning attempts to leave. Aside from the US / Iran talks, the main event for market participants is likely to be Fed Chair nominee Kevin Warsh’s confirmation hearing before the Senate Banking Committee at 10AM on Tuesday. In US macro data, we now expect core PCE for March to come now at 0.26% MoM & 3.1% YoY. We expect core PCE for Dec'26 to end at 3.1% YoY. In US macro data this week, we have Univ of Michigan survey, retail sales, pending home sales & S&P PMIs. There are no fed speakers this week as FOMC remains in black out period before the FOMC meet on 29th April. With the intensity of news flows currently, we continue to believe in a delayed rate cut cycle in US, possibly the 1st rate cut in Q4CY26 after Kevin Warsh has spent some time in FOMC & earned their confidence. While employment remains low hire low fire, inflation is too sticky to ignore. Core PCE is likely to end at 3.1% YoY in Dec’26. That does not augur well for inflation mandate of FOMC. But we believe that employment might worsen by CY26 end leading to an insurance cut. For the last few weeks, we have recommending 2*10 steepeners since 22 levels. Currently it is at 28. We have a profit target of 40 in this trade with stop loss at 15. In UST auction supply this week, we have $13 BN of 20yr supply on Monday & $26 BN of 5 year TIPS on Tuesday. In RoW events, we have Eurozone flash PMIs, German ZEW survey and IFO. We believe if the spot price of Brent were to remain in the $95-100/bbl range by the ECB’s June meeting, then the ECB would raise rates by 25bp in June and then again in September. This is against current market expectations of 33 bps of hike till Sep’26. In UK we have the crucial March CPI data & retail sales data.

Following a volatile week in which President Trump threatened severe escalation of attacks on Iran before declaring a two-week ceasefire, market participants will now focus on crude price’s trajectory this week considering US and Iran ended direct talks in Pakistan without an agreement, putting a fragile ceasefire at risk. To us what matters most is the fact that in spite of Vance being there, there was no agreement. In SoH (Strait of Hormuz) itself, the threat of mines has enabled Iran to keep the price of oil and shipping insurance as high as possible for as long as possible without conducting attacks that would cause the ceasefire to collapse. Iran thinks that the high price of oil and shipping insurance would cause the United States to cave on some of Iran’s demands. Today morning Trump announced that the US would blockade the Strait of Hormuz following the collapse of peace talks with Iran in Islamabad this weekend. This implies a complete stand still for crude physical supplies now. The above further puts upward pressure on crude prices. Hence, it is a matter of time before the paper brent future prices (95-100) match to physical crude prices ($140). In US macro data, there is existing home sales, industrial production, initial jobless claims & Fed's Beige Book. We are also hearing that Kevin Warsh senate ratification process is delayed. An expected Senate hearing on the nomination of Kevin Warsh for Federal Reserve chair has been delayed. This implies Powell continues to be Fed Chair even beyond the 15th May deadline. On US macro outlook, we believe 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. We expect Brent to open tomorrow in Asia at $100+ levels and 10yr UST levels to open at 4.36 against Friday’s close of 4.31. We expect US equity futures to open sharply lower by 2%. We are now turning bearish on US equities in both short and medium term. With private equity fears, crude being higher, rates cuts being delayed, employment figures continuously being threatened by AI use, risk assets face a tough time in the coming weeks and months. Dollar should make a comeback as US is net energy exporter. Largest casualty in fx might be JPY, EUR and energy importing EMs.

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.

In US March CPI data due for release on 10th April, we expect Core CPI inflation accelerated to 0.29% m-o-m in March from 0.22% in February, due to a rebound in core goods and rent inflation. 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. We expect super core CPI inflation decelerated only slightly to 0.34% m-o-m in March from 0.350% in February. A sharp increase in gasoline prices likely led to double-digit m-o-m inflation in CPI energy prices. Our forecast for headline CPI is 1% m-o-m, the highest since June 2022. Our forecasts for CPI and PPI translate into a 0.26% m-o-m increase in core PCE inflation for March, which corresponds to y-o-y inflation of 3.1%. We now expect core PCE inflation to drift above 3.0% y-o-y throughout the year, although the 3m change rate will likely decelerate in H2 2026. From Fed's policy perspective, March CPI report might demonstrate some signs of newly emerging sources of price pressures, which is unlikely to help alleviate inflation risks among policymakers. Hence, we now expect the Fed to delay its lone 25 bps cut to Q4CY26 this year (our prior forecast was for June and September). US markets are currently pricing in only 20% probability of a rate cut in REMCY26 which looks under whelming to us. Hence, we like to receive 1yr-1yr US SOFR around 3.75 levels (currently 3.61) for a profit target of 3.50 with a stop loss at 3.90. We also like 2*10 US steepeners at current levels of 22. We have a profit target of 40 in this trade with stop loss at 15.

In addition to geopolitical headlines, market participants will have to process speeches from a number of Fed officials, most notably Chair Powell's moderated discussion and NY Fed President Williams’ speech, both on Monday, as well as a smattering of data before they are able to leave for the Easter weekend (bond markets have an early close while equity markets are closed for the Good Friday holiday). Tensions and uncertainty remain elevated between the US and Iran with media reporting both signs of escalation and negotiations. Our own view is that Iran is winning this war. Though there is a high probability of a US ground operating around Kharg island around 6th April, unless US holds any territory, it has no advantage. Iran still has almost 70% of it's missile stock as reported in media last week. Houthis remain in reserve & are another unspent force for Iran. We dont believe Iran will end war on US terms as Iran sees it's current state as an equal to US-Israel front. We also believe Strait of Hormuz might soon see a Iran controlled tolled traffic post war on lines similar to Suez Canal authority. On macro front, we have the March NFP as well as JOLTS, ISM manufacturing, trade balance data this week. We expect March NFP at 45k and unemployment rate at 4.4%. We now expect the Fed to delay its lone 25 bps cut to Q4CY26 this year (our prior forecast was for June and September). Diminishing near-term political pressures, specifically a delayed confirmation for Chair nominee Warsh, and inflationary pressures from the Iran War led us to push back the timing of cuts. US markets are currently pricing in 24% probability of a rate hike in REMCY26 which looks stretched to us. Hence, we like to receive 1yr-1yr US SOFR around 3.75 levels (currently 3.67) for a profit target of 3.50 with a stop loss at 3.90. We also like 2*10 US steepeners at current levels of 22. We have a profit target of 40 in this trade with stop loss at 15. On RoW front, Europe has German, French & Eurozone March inflation data this week which will show the impact of elevated energy prices post the middle east conflict started from 28th Feb. We believe if the spot price of Brent were to remain in the $95-100/bbl range by the ECB’s June meeting, then the ECB would raise rates by 25bp in June and then again in September. This is against current market expectations of 75 bps of hike being priced in REMCY26. In China, we have PMI datas this week which we expect to be on the softer side due to the middle east energy shocks.

We expect nonfarm payrolls (NFP) growth rebounded to 45k in March. The unemployment rate is likely to remain steady, just rounding down to 4.4%. We expect average hourly earnings growth of 0.3% m-o-m after two months of 0.4% increases. Underlying wage growth appears to have stabilized around 4%. March NFP growth will likely be boosted around 30k by the end of a nurse’s strike. This was a drag on February NFP, but concluded shortly after last month’s reference week, so a full reversal is likely in this report. Initial and continuing jobless claims both improved through the March NFP survey reference week. We expect headline job gains to stabilize in March after two exceptionally noisy reports. Rate cuts remain likely later this year under new Fed leadership, but, for now, we expect officials to remain patient. We now see only one rate cut of 25 bps in Q4CY26 in US. Markets have completely removed cuts from REMCY26 and are now pricing in a 24% probability of a 25-bps rate hike in REMCY26. We believe it is a trading opportunity and recommended putting on 2*10 US SOFR steepeners around 25 levels last to last week. Although we did see our stop loss 15 levels intermittently last week, now the trade has recovered to 22 levels, and we continue to target 40 levels. We also like receiving the 1yr-1yr SOFR around 3.75 levels (CMP 3.66) for an eventual profit target of 3.5 with stop at 3.90. Even if there is no cut till Powell remains as Fed chair but as Warsh comes in and settles, rate cuts might still happen in a backend manner i.e. Sep’26/Dec’26 or Dec’26/Mar’26. 2/3rd of 2026 voters still expect to ease this year.