Opinions

This week’s economic calendar features only a light smattering of data as Fed officials will be in their usual communications blackout ahead of next week’s FOMC meeting on 29th July. Last week's US inflation data had many surprises on the downside. June’s headline CPI (-0.42% vs. +0.47%) declined given the almost 10% fall in motor fuel prices. However, core CPI (-0.02% vs. +0.21%) came in meaningfully weaker than expectations. Taken together with the CPI data and import prices, we are tracking +0.18% for June core PCE, which would correspond to 3.3% year-over-year barring any revisions. Looking ahead, we expect easing tariff effects and residual seasonality to keep core PCE inflation on a gradual disinflationary path. A 0.2% monthly core PCE print would represent further progress toward the Fed’s inflation objective and should reduce the likelihood of rate hikes in the near term. We see a Fed on hold for REMCY26 as inflation seems to be cooling down in momentum and might further see another leg down from Sep’26. Our trade idea on 1yr-1yr US SOFR receive at 4.15 was triggered last week and is currently at 4.04. We have a profit target of 3.90 and a SL of 4.40. Half of the risk was initiated at 4.15 and another half will be initiated at 4.25. We continue to remain bullish on DXY & like JPY shorts at current levels. In US macro data this week, we have initial jobless claims, S&P PMIs & new home sales. In dated UST supply, we have $13 BN of 20yr UST auction on Wednesday & $21 BN of 10yr TIPS on Thursday. The 2nd round of US Iran war has gained momentum & we expect Brent to open near $90 levels on Monday Asia morning. In RoW data, we have ECB meeting on Thursday where we expect a neutral hold. We also have Canada CPI data due on Monday & UK CPI data due on Wednesday.

The economic calendar picks up meaningfully this week with the main highlights being Tuesday’s CPI and Wednesday’s PPI releases which coincide with Fed Chair Warsh’s first Humphrey-Hawkins testimony before the House Financial Services and Senate Banking Committees. In US macro data this week we have retail sales, PPI, CPI, initial jobless claims and Univ of Michigan prelims for July. We expect the growth momentum to continue in US data for now. We see Q2CY26 GDP tracking currently at 2.3% q-o-q ar. In Fed speak this week, there is a deluge of speakers ahead of the communications blackout period, which starts at the end of the week. Communications this week will be the last opportunity for officials to provide any signals to the market about policy leanings ahead of the July FOMC meeting. Despite the continued strength in June m-o-m core PCE inflation, a negative reading of headline inflation and upcoming PCE methodology changes will likely keep the Fed patient on rate hikes for REMCY26. We maintain our monetary policy outlook of no rate hikes for REMCY26. Markets are currently pricing in 37 bps of hike in REMCY26 which looks just about stretched to us. 1yr-1yr US SOFR remains our high conviction idea based on above view, but the entry is yet to be triggered. We like receiving half risk at 4.15 and another half at 4.25 with stop at 4.4 and TP at 3.90. Last week it made a high of 4.09 before cooling down to current levels of 4.08. We also like being bullish on DXY till Sep against JPY and GBP. On the middle east conflict, we believe current series of escalations implies markets building in some amount of risk premium and hence brent prices are likely to range between 75-85 in short term. We still believe both sides do not want a full fledged war and might return to negotiations sooner than later. In RoW macro data, we have Euro area industrial production, Euro area final HICP readings and UK monthly GDP data. We also have BOC meeting on Wednesday where we expect Bank of Canada to remain on hold.

We expect core CPI inflation remained relatively stable at 0.20% m-o-m in June, after a 0.208% advance in May. We expect super core CPI inflation accelerated to 0.36% m-o-m in June, following a 0.27% advance in May. Core goods inflation remained in contractionary territory due to waning impact from tariffs & lower used vehicle prices. We see likely headline inflation at -.2% MoM. While June core PCE inflation likely remained above an annual rate of 2%, we expect the anticipated negative headline inflation and upcoming methodological changes to PCE prices will keep the Fed on hold for REMCY26. Markets are currently pricing in 37 bps of hike in REMCY26 which looks just about stretched to us. 1yr-1yr US SOFR remains our high conviction idea based on above view, but the entry is yet to be triggered. We like receiving half risk at 4.15 and another half at 4.25 with stop at 4.4 and TP at 3.90. Last week it made a high of 4.09 before cooling down to current levels of 4.08. We also like being bullish on DXY till Sep against JPY and GBP.

Following last week’s labor data dump, this week’s economic calendar is relatively light with market participants likely to focus more on Fed communications which might come in Fed minutes release on Wednesday. On the June NFP, it looked more noise than any signal and we expect policymakers to treat it accordingly. Chair Warsh leaned dovish at the ECB’s Sintra forum and we expect Fed to remain on hold for REMCY26 till Fed receives recommendations from it's task forces. Warsh's own framing appeared closer to dovish policymakers, who have attributed elevated inflation partly to energy prices and tariffs. Reportedly, former BOE Governor Mervyn King is likely to co-chair the Fed’s communications task force. King’s reported role reinforces the idea that the communications task force may recommend a less explicit Fed communication strategy. From a market perspective it implies higher term premium & higher vols. In this week US macro data, we have ISM services, existing home sales and initial jobless claims. We continue to believe that Fed might remain on hold for REMCY26 as inflation cools down just enough to support Warsh & other doves. Employment situation still looks stable but might not remain so after Sep’26. Hence if there is no middle east conflict re escalation, Fed might just wait entire H2CY26 to see how the labor-inflation dynamics evolve. Markets are currently pricing in 30 bps of hike by end CY26. 1yr-1yr US SOFR remains our strong conviction idea based on above view, but the entry is yet to be triggered. We like receiving half risk at 4.15 and another half at 4.25 with stop at 4.4 and TP at 3.90. It’s recent high was at 4.12 before cooling down to current levels of 3.98. In Row macro data, we have German factory orders, Euro area Sentix survey, German industrial production & Chinese PPI/CPI data. We also like being bullish on DXY till Sep against JPY and GBP. We are neutral on EURO against USD.

Fed Chair Warsh’s appearance at the ECB’s annual Central Bank forum in Sintra, Portugal (Wednesday) and Thursday’s June employment report headline this week’s holiday-shortened economic calendar. We expect Chair Warsh will keep his cards close at the Sintra meeting, similar to the post FOMC press conference, deflecting pointed questions by deferring to the five task forces currently being assembled. The more important signal will be how he frames recent developments in the Middle East and the decline in crude oil prices. On the June NFP, we expect 75k headline no with unemployment rate at 4.3%. Lead indicators for the labor market have remained steady, but the fading impact of temporary factors that boosted hiring in May likely points to a softer June print. On the inflation side, BEA has announced future changes to its methodology to estimate certain key PCE price components, including portfolio management and investment advice services, legal services, and computer software and accessories. The net impact from those changes has the potential to lower y-o-y core PCE inflation by 20-30bp. Those changes will take effect on 30 September 2026, along with annual revisions to the national account data. In other US macro data this week, we have JOLTS, ISM manufacturing & consumer confidence. There is no supply of dated USTs this week. On policy front, we expect the Fed to keep policy on hold in REMCY26, with inflation developments posing risks to potential rate hikes. There are no Fed speakers lined this week hence Warsh's speech on 1st July & NFP data on 2nd July might drive the markets. In RoW data this week, we have Eurozone HICP inflation data this week along with likely comments from UK PM-in-waiting Burnham.

We expect nonfarm payrolls (NFP) slowed to 75k in June against May's print of 172,000 and current market estimates for June at 115,000. Lead indicators for the labor market have remained steady, but the fading impact of temporary factors that boosted hiring in May likely points to a softer June print. The unemployment rate likely remained unchanged at 4.3%. We expect average hourly earnings growth slowed to 0.2% m-o-m, driven by a negative calendar effect. Lead indicators and alternative wage measures suggest wage pressures are easing, albeit gradually. Our NFP forecast is mainly driven by partial negative payback after exceptional strength in recent months. Overall, we believe the labor market remains resilient and is likely to gain steam in the coming months at least till Sep’26. Steady labor market conditions should keep Fed officials focused squarely on upside inflation risks. We expect the Fed to keep policy on hold in REMCY26, with inflation developments posing risks to potential rate hikes. Markets are currently pricing in 32 bps of hike by end CY26 which has come down from as much as 40 bps last week. 1yr-1yr US SOFR remains our strong convincing idea based on above view, but the entry is yet to be triggered. We like receiving half risk at 4.15 and another half at 4.25 with stop at 4.4 and TP at 3.90. Last week it made a high of 4.12 before cooling down to current levels of 3.92. We also like being bullish on DXY till Sep against JPY and GBP. We turn neutral on EURO against USD.