Report by Renta 4
Flat opening on European markets (Eurostoxx futures down 0.1%, S&P futures up 0.2%, Nasdaq futures up 0.7%) and modest gains in Asia (Nikkei up 0.8%, Kospi up 1%), with markets keeping a close eye on US-Iran negotiations (the draft MoU has already been published) and with Brent crude continuing to fall (down 16% over five sessions to 78 USD/b), as attention focuses on whether physical traffic begins to move through the Strait of Hormuz.
Today we have a major figure in the spotlight: Kevin Warsh, who will make his debut at the helm of the Fed, whilst SpaceX (up 4.8% yesterday, up 49% since its IPO last Friday) has become the world’s fifth most valuable company (with a market capitalisation of $2.65 billion), overtaking Amazon and even briefly surpassing Microsoft at its intraday high.
On the geopolitical front, it is worth noting that the draft MoU has been published, which appears to favour Iran to a greater extent. Among the most significant aspects of the peace agreement, we highlight: 1) The United States will lift the naval blockade and restore traffic through the Strait of Hormuz within a maximum of 30 days; 2) Iran will guarantee the movement of merchant ships and clear the mines within 30 days; 3) the US Treasury will issue exemptions for Iranian exports of crude oil, petrochemicals and derivatives immediately upon signing, including banking, insurance and transport services; 4) Iran’s frozen assets will be released and will be fully available, though no specific date has been set; 5) the issue of enriched uranium is left to the final agreement; 6) the war ends “on all fronts, including Lebanon”, but Israel is not a party to the MoU and Netanyahu has not confirmed this; 6) It mentions that the United States will pay $300,000 million in war reparations to fund a reconstruction plan with regional partners, although Trump denies this; 7) The final agreement must be approved by a binding resolution of the UN Security Council.
Ahead of today’s Fed meeting, we expect it to keep rates unchanged at 3.5%–3.75%, and we will pay particular attention to the update on the macroeconomic outlook, where we may see some upward revision to inflation, an unemployment rate with no major changes (given recent positive data) and a ‘dot plot’ indicating one or no rate rises for 2026 (compared with a 25 bp cut forecast in March) and between one or no cuts for 2027 (compared with March’s -25 bp), and we will be watching the long-term neutral rate (currently 3.125%).
We note that this will be the Fed’s first meeting with Kevin Warsh at the helm, replacing Jerome Powell, which could bring significant changes to communication (will press conferences continue in future?), as well as the possible removal of“forward guidance” and the “dot plot”, which could imply a loss of transparency. We should also watch for any anticipated changes to the preferred measure of inflation (currently the core private consumption deflator).
Currently, following the announced peace deal and with the easing of oil prices, Warsh has greater scope to strike a neutral tone without appearing “dovish”. The market is pricing in just a 25 bp hike by late 2026–early 2027.
As for the ECB, it is worth noting that several members of the Governing Council pointed out yesterday that the Iran deal does not halt the tightening cycle, given that “high energy costs are likely to persist for longer than expected”, with shocks tending to accumulate, and with four months of high energy prices already impacting inflation. The market is pricing in a further 25 bp this year and perhaps another 25 bp in 2027. In this environment, IRR rates remain well above pre-war levels, also reflecting structural concerns beyond oil (fiscal deficit, higher neutral rate, and an AI cycle putting pressure on demand).
In the case of the Riksbank (Swedish Central Bank), the market is pricing in a unanimous hold (1.75%), with attention focused on whether the projections justify the 25 bp hike priced in by the market for the end of the year (the economy is weak and current inflation is very low, at 1.5% headline and 0.5% core versus the 2% target), with a risk of imported inflation due to the depreciation of the Swedish krona should its monetary policy diverge significantly from that of the ECB.
On the macro front, the UK’s May CPI figures have been released, coming in better than expected for both the headline and core rates, but with significant pressure in services: headline up 2.8%e year-on-year (up from 3.0%e and 2.8% previously), core up 2.6%e year-on-year (against 2.7%e and 2.5% previously) and services up 3.7% year-on-year (against 3.6%e and 3.2% previously). In the Eurozone, the final CPI figure for May will confirm the upturn seen in the preliminary data: 3.2% year-on-year overall (matching the preliminary figure against 3% previously) and 2.5% year-on-year core (matching the preliminary figure against 2.2% previously). In terms of economic activity, US private consumption data, including May’s retail sales, are expected to remain robust (0.5%e overall against 0.5% previously and 0.4%e excluding cars against 0.7% previously).
