MacroSpectrum

Macro Spectrum is set up by a team of traders & strategists working across the globe in various asset classes. For details, please visit

[MacroSpectrum @MacroSpectrum]

What we see ahead: Below is our weekly report on major economic data points in G-7 this week & our expectations:

https://t.co/Bxur9uvOi1

1. The past week saw two important updates that may be consequential for the US economic outlook this year. First, data that feed into current-quarter GDP tracking have continued to show notable resilience in the face of the sharp contraction in oil supply and jump in energy prices. Second, front-month crude oil futures declined over $10/bbl last week on reports of an extended ceasefire that could re-open the Strait of Hormuz. While uncertainties remain, the acute risk phase for the global economy should be over if tankers can begin moving again.

2. In US macro data last week, core PCE came in slightly softer at 0.24% MoM but YoY remained at 3.3%. Trimmed-mean PCE — which Chair Warsh has highlighted as an alternative gauge of underlying inflation — eased to 2.3% y-o-y, about a full percentage point below core PCE. We believe that trimmed-mean PCE may be understating inflation risks, particularly because it has been slow to capture shifts in goods inflation dynamics and the recent change in the skewness of the inflation distribution. PCE trimmed-mean inflation underestimates the underlying inflation by 48bp on a y-o-y basis.

3. Coming to next week, the economic calendar may move back to the forefront for market participants. The main highlight will be Friday���s May employment report where we expect headline +105k forecast vs. +115k previously. Our forecast would bring the 3m average of NFP growth up to 136k – the strongest since December 2024. For our detailed preview note on the same, please see below:

https://t.co/6s6XAtf3mP

4. In other US macro data next week we have ISM services, ISM manufacturing, JOLTS & initial jobless claims. We do not have dated UST supply next week.

5. Fed speak last week reflected a broad-based shift towards a more hawkish tone on the FOMC, even as most officials continue to expect disinflation in coming months as their base case. Skepticism of labor productivity-led disinflation has been a focus for the FOMC recently. Several officials acknowledged AI’s potential to lift longer run growth but remain unconvinced that productivity gains can reliability ease inflation in the near term.

6. On Iran conflict, no clear resolution in sight yet. US President Donald Trump has demanded changes to a proposed agreement with Iran, triggering a fresh round of negotiations that could delay a final deal by several days. Our own take is a temporary 60-day agreement is likely this week around Wednesday considering both parties are agreeing to not seek war though they do differ on two major topics: SoH and enriched Uranium status.

7. To summarise on US economy, with Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months till end CY26. Any future inflation developments might be the most-likely catalyst for an eventual resumption of rate cuts or pivot to hikes.

8. In RoW data, we have Eurozone May HICP data on Tuesday which is expected to accelerate to 3.3% from 3% in April. We see two ECB rate hikes in June and Sep this year as a result of higher energy prices.

[MacroSpectrum @MacroSpectrum]

US NFP MAY’26 PREVIEW: We have released our detailed preview report on May NFP (data due on this Friday) as below:

https://t.co/6s6XAtf3mP

1. We expect nonfarm payrolls (NFP) remained elevated at 105k in May against April's no of 115k and current market estimate of 89k. Our forecast would bring the 3m average of NFP growth up to 136k – the strongest since December 2024.

2. Lead indicators have been constructive, continuing to signal an acceleration in employment growth. ADP’s weekly private employment measure remained elevated through April and early May, and continuing jobless claims stabilized close to a multi-year low.

3. The unemployment rate likely remained steady at 4.3%. Measures of hiring and labor demand have shown tentative signs of a rebound, which we expect will lead to a gradual decline in the unemployment rate in H2 2026.

4. Average hourly earnings growth likely rebounded to 0.4% m-o-m. A negative calendar effect and an increase in the average workweek weighed on AHE in April, but underlying wage growth appears elevated, leading us to expect positive payback this month. Service-sector surveys show a pickup in expected wage growth, and the JOLTS quits and hires rates have stabilized in recent quarters.

5. Summary: A report in line with our expectation would likely keep Fed officials focused on inflation risks. We expect the Fed is likely to keep policy on hold in REMCY26, with inflation developments the most-likely catalyst for an eventual resumption of rate cuts or pivot to hikes.

6. From a market perspective, if the report comes in line with our expectations, we expect US bond yields to move higher by 5-6 bps from pre-event levels across the curve. We continue to believe in 2-10 US SOFR steepener as we believe 10yr UST yield has far higher potential to climb up in light of fiscal worries, continued equity traction & sustained selling by foreign investors. Our stop loss on 2-10US SOFR steepener is at 14 level and currently it is at 17. We have a profit target of 40 on this trade.

7. We expect DXY to remain strong post data release.

[MacroSpectrum @MacroSpectrum]

AI’s IMPACT ON US INFLATION & EMPLOYMENT: Unlike Kevin Warsh, we have a different view on AI's impact on US inflation & employment:

https://t.co/A0zaU9FAGO

1. Recent advances in artificial intelligence (AI) have raised hopes of a boost to economic growth. Many market participants believe that AI has the potential to be the most important general-purpose technology of our era. The recent inroads of generative AI in everyday applications in particular promise widespread efficiency gains. But we see a different picture.

2. AI boosts GDP by raising productivity and investment, with variable effects on the demand and supply sides of the economy. The output gap is the difference between aggregate demand (GDP) and aggregate supply (potential output). At first, supply exceeds demand in most regions, due to the concentration of early adoption of generative AI (GenAI) in “easy-to-learn” tasks. This leads to a swift increase in productivity that significantly surpasses the initial investment. Subsequently, as AI investment extends to less profitable areas of “hard-to-learn” tasks, the situation evolves with demand outpacing supply. This results in a positive output gap that puts upward pressure on prices. In the widespread AI adoption scenario, the effects on the output gap are twice as large as in a conservative scenario.

3. Hence in short term, AI raises productivity and lowers marginal costs, exerting downward pressure on inflation. But in long term, by nature of AI, intensely dependent on energy & commodity space along with limits on learning skills, AI leads to an uptick in inflation. In a conservative scenario, commodity prices may rise by between 1% and 2% by 2033 due to an AI induced increase in demand. In the widespread adoption scenario, the projected effects are twice as great.

4. A natural starting point in this analysis is the familiar view of AI as a productivity-enhancing general-purpose technology: by improving efficiency, compressing unit costs, and expanding effective capacity, AI can act as a structural disinflationary force. At the same time, the macroeconomic footprint of AI is not confined to productivity. Scaling and deploying AI requires costly complementary inputs and infrastructure, can reshape product-market pricing and market power, and can alter labor-market rents and wage-setting wedges. Moreover, the diffusion of AI has increasingly taken the form of an investment and infrastructure wave—most visibly through rapid expansion of compute capacity and data-center build-out—that operates as a demand impulse as well as a supply-side transformation. The sign, magnitude, and persistence of AI’s effect on inflation therefore cannot be inferred from a single channel or a single dataset; they are joint empirical and quantitative objects that depend on how these mechanisms interact in general equilibrium.

5. The net inflation effect of AI is not mechanically disinflationary even when productivity gains are present. A rise in productivity is a mechanism that exerts a systematic downward force on inflation by reducing unit costs, but it competes with forces that can raise marginal costs or desired markups during diffusion. AI specific input costs arise because the deployment of AI at scale requires scarce complementary resources—compute, energy, cooling, networking, and specialized capital—whose shadow prices can rise when capacity expands rapidly or adjustment is slow.

6. On the employment side, again we do not see any wide spread impact on employment due to AI adoption. Total job postings have been broadly stable, there is limited evidence of a change in the low firing environment across key layoff indicators & WARN indicators show no broad-based impact of AI as layoff remains low. To summarise, AI is still not a threat to US employment in general. In fact, wage growth remains the highest for graduates with bachelor degrees or higher degrees. There is limited relationship between wage growth & AI adoption according to average hourly earnings.

7. So, when the new Fed Chair Kevin Warsh says that he believes AI will lead to marked productivity gains & lower inflation, he is only looking at short term trend. Long term AI is inflationary.

[MacroSpectrum @MacroSpectrum]

THE STATE OF US ECONOMY-RED HOT: We have released the following report on the current state of US economy:

https://t.co/Peq7mZNRy2

1. While geopolitical uncertainty has surged since the start of the US-Iran war in late February, unlike last year’s “Liberation Day” shock though, the war has had little impact on a nascent cyclical acceleration. The investment acceleration we had expected to take hold in 2026 arrived ahead of schedule, with 2025 marking the strongest full year of equipment capex growth since the post-GFC recovery.

2. What began as a narrow surge in the tech/AI sectors has broadened to other industries and types of equipment spending. Capex has remained resilient in March and April. Capital goods shipments and imports have continued to accelerate along with domestic production of business equipment. Hyperscalers ramped up their capex guidance for FY 2026 in Q4 earnings calls around $130 BN higher than what they forecasted in Q3. This was further pushed up by ~$55bn during Q1 earning announcements, partly due to higher prices amid capacity constraints.

3. Despite the recent rise in interest rates, broader financial conditions appear accommodative, and bank C&I lending has continued to rise at a 15-20% annualized pace in recent weeks. Adding to the tailwinds for capex, tariff refunds have begun to ramp up. A cashflow windfall will likely support spending alongside strong growth in revenue and profits.

4. The only weak spot seems to be consumer spending. Consumption has been resilient since the start of the US-Iran war. This strength is likely unsustainable though, with households relying on one-time stimulus cashflows to offset higher energy costs. We estimate households received ~$45bn in additional tax refunds this year due to the One Big Beautiful Bill Act passed last summer. For comparison, through May, we believe higher gasoline prices will have cost consumers ~$30bn.

5. To summarise, we expect business investment to grow 7.8% in 2026 on a Q4/Q4 basis, driven by strong AI investment demand, expanded expensing provisions, and fading drags from the normalization of factory construction and tariffs. Coupled with last week’s GDP tracking data, this implies 2026 GDP growth of 2.1% on both a Q4/Q4 and full-year basis.

6. It's on the inflation side where we see FOMC members turning hawkish last few weeks. Most notable was the hawkish pivot in an outlook speech by Governor Waller, who has represented the dovish core of the Committee. Waller indicated that his risk assessment had shifted towards inflation, which has replaced the labor market as the “driving force” behind monetary policy in the months ahead.

7. Even household interest rate expectations are building in inflation expectations similar to financial markets. Specifically, the net interest rate expectations indicator from the Conference Board clearly shifted in the direction of foreseeing higher rates over the next twelve months.

8. The current difference between the 2-year Treasury yield and the effective fed funds rate is ~40bps but this week high was 50 bps. Historically, that spread has been a reasonably good leading indicator for future changes in the fed funds rate. For example, over the past three decades, the difference between the 2y yield and fed funds rate leads the year-over-year change in the latter by roughly eleven months with a peak correlation of +66%.

9. To conclude, recent Fed communications are consistent with a Fed that is well positioned near neutral but increasingly concerned that inflation may prove more persistent. While our baseline remains that the Fed is on hold near neutral indefinitely, we now see equal risks of a rate increase compared to a rate cut as the monetary policy outlook continues to be impacted by developments in the Middle East. We still think it is too early to have a convincing view on either a cut or a hike at least till we get clarity on the middle east conflict.

10. We will be soon releasing a detailed piece on AI’s impact on US inflation. We believe while AI’s productivity gains put a cap on long term inflation, short term price impact of AI capex is leading to elevated goods inflation via semiconductor chips prices, computer flash memory & old computers.

[MacroSpectrum @MacroSpectrum]

What we see ahead: Below is our weekly report on major economic data points in G-7 this week & our expectations:

https://t.co/kRI5F3hkmC

1. After Monday’s Memorial Day holiday, market participants will come back to a steady flow of data and Fedspeak, both of which will be evaluated in the context of Governor Waller’s hawkish speech last week.

2. US data remain hawkish, pointing to robust growth and building price pressures. Manufacturing and business capex continue to accelerate. The preliminary S&P Manufacturing PMI rose to a multi-year high.

3. We now expect the Fed to remain on hold for REMCY26 (versus our prior forecast of one cut in Q4CY26). Incoming Fed Chair Kevin Warsh is likely still motivated to cut rates. However, we expect easing political pressure, elevated inflation, and strong cyclical growth to support a prolonged pause.

4. In US macro data this week we have PCE, Q1GDP 2nd estimates, consumer confidence, intial jobless claims.

5. In dated UST supply, we have $69 BN of 2yr UST auction on Tuesday, $28 BN of 2yr FRN auction on Wednesday, $70 BN of 5yr UST on Wednesday again & $44 BN of 7yr UST auction on Thursday.

6. On the Iran conflict, Trump indicated in a post on Saturday that a peace deal was imminent but we have seen so many slips and misses that we wait for the final announcements from both sides. Our own view is that the ceasefire extension of 60 days is very likely. Hajj is wrapping up right now. Many stay 5–7 days afterward for Tawaf, departures, etc., so Saudi soil remains ultra-sensitive into early June. Iran is unlikely to escalate unless attacked in this window for fear of cratering its Pakistan channel. In US we have the world cup Football starting from 11th June till 19th July during which time the US side might like to have lower security threats.

7. In short term we see Brent cooling down to 90-100 range if the ceasefire does get announced as Trump indicated. We will be releasing a detailed report on the new Gulf situation post the ceasefire including our views on Brent future trajectory. Currently it is too early to give a definitive view in light of many failures on peace initiatives in the past two months.

8. With Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months till end CY26. Good inflation complimented by sustained service inflation implies an elevated core PCE which does not give space for Fed to cut in light of a stable employment situation.

9. We are now bullish on Dollar and see 102 with a stop at 98, CMP is 99.25. Please see our detailed report on the same:

https://t.co/xD6CkvhbYb

10. In RoW macro data we have Australian CPI on Wednesday & Eurozone individual countries HICP inflation nos on Friday.

[MacroSpectrum @MacroSpectrum]

SpaceX IPO: A Moonshot Valuation Play: We have released a detailed report on why SpaceX IPO remains a moonshot valuation play for public markets even though the problem statement the company is trying to solve is perhaps more suited for private credit:

https://t.co/VibEPu0b6S

1. SpaceX is perhaps the most ambitious IPO ever even by Elon Musk standards. It is attempting to secure a valuation approaching $1.75 trillion despite reporting significant operating losses across major divisions.

2. In it's prospectus filed last week, SpaceX sees a total addressable market of $28.5 trillion and said in its prospectus that identifying and creating trillion-dollar market opportunities is one element of its “repeatable business model.” The vast majority of its addressable market is outside of SpaceX’s existing businesses. There’s an $870 billion market for Starlink’s broadband business, a $740 billion market for Starlink’s mobile unit, a $600 billion digital advertising market for X to pursue and a $2.4 trillion AI infrastructure market. Then there’s enterprise applications, a $22.7 trillion market, based on an estimate from the Digital Cooperation Organization.

3. The issue is not with this forecasts. In fact what SpaceX is doing or attempting to solve is actually unique. It is a leader in launch services market. In fact it's launch revenue understate economics. SpaceX's launch sales were $4.1 billion in 2025, though that understates the segment's full economic power because services for its largest customer, the Connectivity division, aren't included in reported revenue and would likely add another $10-$12 billion. That could make launch a top revenue contributor. SpaceX has no worthy competition except perhaps Blue Origin. In 2025, SpaceX accounted for 81% of large rocket launches vs. 46% in 2019. Measured by kilograms, SpaceX lifted 85%. SpaceX is also well positioned for the Golden dome play via launch, interceptors & satellite communications.

4. It is at the perfect place for defence space inflection point although there is a bit of regulatory risk. Once certified for national-security missions, that payload jump can enable faster missile-warning deployments, rapid satellite replacement and large-scale LEO constellations at a pace no current launcher can match. The near-term ceiling is regulatory restrictions, where the FAA has capped Starbase at 25 Starship launches annually, and SpaceX is pursuing overseas sites to exceed that limit.

5. The problem happens when this vision needs support in public markets. Public investors are being asked to support one of the largest valuations in modern market history while accepting unusually high execution uncertainty.

6. Interestingly Elon Musk controls roughly 85% of SpaceX voting power through special class shares, limiting the influence outside shareholders will have over strategic decisions after the IPO.

7. SpaceX is targeting $75-$90 BN raise at a valuation of $1.75 TN. To put it in context, the entire U.S. IPO market raised roughly $170 billion in 2025, across more than 1,300 deals. If one uses SOTP model, Starlink’s consumer business might be valued at 30 times revenue, launch services at perhaps 5 times & the direct-to-cell segment at around 35 times. Those are very aggressive numbers. But the xAI business had revenues of roughly $500 million in 2025 — and at a $250 billion valuation, it’s being priced at 500 times trailing revenue. At the full $1.75 trillion IPO target and SpaceX’s projected 2026 revenue of around $28.5 billion for the combined entity, we arrvie at forward revenue multiple of roughly 61 times. On a trailing basis, the multiple is closer to 100 times. To justify a valuation at that level, SpaceX needs to sustain roughly 40% annualized revenue growth for a decade.

8. Moonshot organisations such as SpaceX are best funded by private credit which has the comfort of long gestation capital with them. Using public markets to raise funds does not serve the purpose of SpaceX or the public investor.

9. In the end the only winner in this IPO is Elon Musk himself. He’s the largest single shareholder, and a $1.5 to $1.75 trillion valuation would make him, by most estimates, the world’s first trillionaire. And that is where we believe the objective of this IPO lies.

10. Also SpaceX is targeting a listing on the Nasdaq and has reportedly been pushing for fast-track inclusion in the Nasdaq 100 — within just 15 days of listing, compared to the standard waiting period of up to a year. The logic is straightforward: Nasdaq 100 inclusion forces passive index funds to hold the stock, providing an automatic boost to demand post-IPO. The Nasdaq is apparently open to adjusting its rules. Welcome to the new world of Elon Musk where public funds will crown him the world's 1st trillionaire.

[MacroSpectrum @MacroSpectrum]

Mr Precious Metal doesn’t like Mr Bond Vigilante: We have released a detailed report why precious metals are not expected to do well in H2CY26 in light of rising bond yields globally:

https://t.co/ZOHwaWkZif

1. Last two weeks were unique because we saw rising bond yields globally along with rising DM equities but falling precious metals. DM yields sold off sharply across jurisdictions last 2 weeks driven by elevated energy prices amid inconclusive headlines on the Middle East from the Trump-Xi summit, a sharp increase in UK political noise and heavy supply across several markets.

2. We now see this trend continuing even if there is a Iran deal. The global economy is in the midst of a cyclical upturn in goods spending, which is putting upward pressure on prices. If our baseline view is realized—that is, that the Strait of Hormuz soon reopens and crude oil prices linger close to $100/bbl—a mix of goods sector cost pressures, tightening labor markets, and firm pricing power could push global core inflation well above 3%. Such an outcome would set the stage for a new round of global monetary policy tightening.

3. Core inflation is now sticky globally because of reduced supply chain resilience, service inflation remaining high, rise in short term inflation expectations & the fact that inflation is not any more range bound. Hence in line of above facts, we see short end yields globally remaining elevated during H2CY26.

4. This does not bode well for precious metals. Higher yields raise the opportunity cost of holding non-yielding assets, and markets are increasingly entertaining the possibility that the Federal Reserve may have to keep monetary policy tighter for longer or even raise rates again.

5. We also looked at correlation of Gold & Silver with DM short end yields i.e. 2-year bonds. As expected, precious metals have a significant -ve corelation with short end DM yields. The more the DM short end yields remain elevated, the more precious metals become unattractive due to lack of carry.

6. For precious metals, the risk-reward setup is becoming increasingly asymmetric. They are vulnerable to a larger correction if markets price in more rate hikes, stronger real yields and a firmer U.S. dollar which is our view too.

7. Rising borrowing costs, persistent inflation, elevated energy prices and deteriorating fiscal dynamics could push markets closer to a breaking point. Hence, we now see Gold testing 4000 levels & Silver testing 65 levels in H2CY26. The stop to this view is Gold at 4900 & Silver at 85. CMP of Gold is 4500 and Silver is 75.

[MacroSpectrum @MacroSpectrum]

KING DOLLAR IS BACK: We have released a detailed report today on why we believe Dollar strength is back and Dollar can rally significantly in H2CY26:

https://t.co/xD6CkvhbYb

1. Global macro-outlook has turned +ve for Dollar. USD is benefitting from: 1. Carry/ Terms of Trade 2. A more balanced Fed 3. Firmer domestic data 4. Renewed US equity strength.

2. Shifting terms of trade have dictated FX returns in recent months. These ToT shifts should lead to diverging growth outcomes, which have started to become clearer in recent activity data, including the sharp downside surprise in China April activity data and the deceleration in the May flash PMIs for Europe. While there are a number of important exceptions, like CNY and commodity-intensive exporters, the net effect of the AI boom and higher-for-longer energy prices leaves the US looking like a relative outperformer once again.

3. Also the situation in the Middle East which is not mending itself as many would have assumed a month or so ago. Signs that the Hormuz strait will stay clogged for longer can only exert upward pressure on oil prices – with the dollar gaining 0.5-1% per 10% of higher oil prices in our estimates.

4. From the perspective of US macros itself. the US labor market is showing more signs of demand stabilization after months of softness weighed heavily on the USD. US inflation upside surprises are re-emerging, challenging expectations of limited pass-through to core inflation. US equities are in the midst of one of their great ~2m runs ever reinvigorating the notion of dollar-positive US exceptionalism via strength in the tech sector.

5. USD OIS curve is still meaningfully lower than the G10 average. This could narrow two ways - by 1) depricing RoW hikes, or 2) if US rates continue to creep higher on growth/inflation/Fed signalling.

6. On Euro itself, we’ve a bearish-EUR/USD forecast & now expect a range of 1.12-14 in H2CY26. The Euro is among the lowest yielders globally, growth momentum has substantially worsened vs the US, relative ToT deteriorated sharply. The real yield differential has narrowed further, completely reversing the improvement post-German fiscal u-turn in March 2025.

7. On JPY, we remain bearish and believe if not for intervention, JPY might have breached the crucial 162 levels.

8. On GBP too, we remain bearish & see 1.30 levels sooner than later considering last week’s set of poor data & continued political uncertainty.

9. Only AUD & CNH might remain insulated from DXY strength as AUD gets supported by commodity strength & CNH has a high current account surplus supporting it’s resilience.

10. To summarise, we now see DXY moving towards 102 levels in H2CY26 if 98 holds on the downside. DXY is currently at 99.25.

[MacroSpectrum @MacroSpectrum]

What we see ahead: Below is our weekly report on major economic data points in G-7 this week & our expectations:

https://t.co/YkA3486CAA

1. The Strait of Hormuz remains closed and the price of oil remains elevated leading to global bond selloff last week. While US equities mildly corrected on Friday, last week action was in bond markets. 10-year UST yields climbed 25bp over the past week and nearly 70bp since the conflict began. Markets have now fully priced one Fed hike by March, whereas last Friday that was closer to a 10% chance.

2. US economy remains strong as seen in macro data and we now expect Q2 GDP at 2%. The economy benefited from the wave of personal tax stimulus in March and April, and business surveys suggest firms may have brought forward activity to get ahead of future price increases and supply chain delays. The fading tax stimulus would be less of a concern if oil prices were to quickly retrace in coming weeks, but that seems increasingly unlikely.

3. We now expect Brent prices to remain sticky in the low $100/bbl even after the Strait reopening, eventually averaging $95/bbl for CY2026, as the bottleneck will shift from the physical chokepoint of the Strait to tanker availability and strong demand to rebuild inventories. Futures markets are not that far below and see crude still at $91 in December.

4. While the job markets continues to remain stable, inflation worries are front and center. Inflation data released last week were broadly hawkish, pointing to signs of building price pressures. We have revised up our core PCE tracking estimate to 0.30% m-o-m, which translates to 3.3% y-o-y, significantly above the Fed’s target.

5. Tech-related components are emerging as a new source of inflation, offsetting some slowdown in tariff-sensitive consumer goods. PPI’s price index for rubber and plastic products jumped in April. PPI’s truck transportation prices rose at their fastest pace in the series’ two-decade history, driven by higher fuel costs as well as limited capacity in the truck industry.

6. In summary, Fed remains on hold for next several months. We still expect a 25 bps cut in Q4CY26 as an insurance cut if inflation shows signs of stabilising or if there is a resolution on SoH.

7. We were stopped out in our 1yr-1yr US SOFR receive trade as it closed at 4.01 last week above our stop loss at 4%. We continue to like steepeners i.e. 2-10 US SOFR at current levels of 24 for a target of 40 with a stop at 14.

8. This week in US macro data we have Fed minutes, S&P PMIs, IJC, Univ of Michigan survey.

9. In dated supply, we have $16 BN of 20 yr UST auction on Wednesday & $19 BN of 10 year TIPS on Thursday.

10. In RoW data we have Canada CPI, UK CPI, UK fiscal deficit, Japan CPI & GDP along with Chinese activity data.

[MacroSpectrum @MacroSpectrum]

CROSS ASSET STRATEGY May’26: When times are volatile as they currently, a holistic view on cross assets is necessary for a sound judgement formation. Below is our cross asset strategy for May'26:

https://t.co/GuwU1pGuiM

1. Limited progress on the negotiations between the US and Iran has pushed oil prices modestly higher on the week closing at 109+ for Brent, as persistent physical constraints continue to build pressure amid still limited visibility on the reopening of the Strait of Hormuz. We now expect Brent prices to remain sticky in the low $100/bbl even after the Strait reopening, eventually averaging $95/bbl for CY2026, as the bottleneck will shift from the physical chokepoint of the Strait to tanker availability and strong demand to rebuild inventories.

2. DM rates are pricing in hikes aggressively against our modest expectations. The US money market curve (1Yx1Y OIS minus effective Fed funds rate) is now +vrly sloped with markets pricing ~30bp of hikes by June’27 (against our expectations of a 25 bps cut in Q4CY26), while €STR and SONIA curves are pricing between 2 -3 25bp hikes by the ECB (75bp) and BoE (66bp) before year-end vs. our call for a cumulative 50bp (June and September) and 25bp (July hike) respectively.

3. In Fx, while the broad Dollar is close to flat over the last few months, that obscures larger shifts under the surface and quietly building Dollar appreciation pressure. We have been emphasizing that terms of trade have been a key differentiator for FX returns in this more divided Dollar environment, and it is increasingly clear that two major forces—the energy shock and AI-driven demand—are responsible for the shortages causing that move. As the past week has demonstrated, we think the clearest risk for a stronger Dollar is if a wider energy shock begins to pressure growth, policy, and prospective returns in other developed countries, particularly Europe.

4. In the credit space, the absolute level of defaults has been trending higher from the very low levels that persisted in 2022/23 but remains near historical median levels. Interestingly, in contrast to the prevailing market narrative related to potential disruption of Software-focused firms, the sector composition mix still skews heavily towards capital industries and consumer-facing businesses. None of the metrics we monitor signal a near-term uptick in expected defaults in the US. In Europe, we still envision a modest increase in defaults through year-end, owing to a more challenging growth, inflation, monetary policy mix.

5. To summarise, we are bullish on 10yr Gilts, 10yr Bunds, bearish on Gold & Silver, bullish on DXY specially against EUR & JPY. We like 2*10 US steepeners and like receiving 1yr-1yr forward US SOFR. We are neutral on equities now and on Brent see a range of 95-120 for REMCY26. We like selling IVs in commodities especially crude and buying IVs in precious metals & DM equities.

[MacroSpectrum @MacroSpectrum]

Without fundamentals can interventions sustain JPY: We have released a detailed report on why believe JPY fundamentals might keep it headed towards 162 levels irrespective of MoF interventions:

https://t.co/zItfJul1Dl

1. USD/JPY finally breached 158 to the upside last week, closing at 158.74. There was no strong evidence of MOF’s interventions around 158.

2. We believe market interventions can only delay the inevitable as FX fundamentals have not yet tilted toward USD/JPY downside because:

a) Oil remains elevated, leading to the rise in USD.

b) There are no strong signs of Japanese investors’ repatriation.

c) Japanese fiscal policy uncertainty increases, owing to news reports on the supplementary budget.

3. Bessent might not want any UST redemptions from MoF in the current rising US bond yield environemnt, hence the support for JPY intervention.

4. Crude remains elevated with brent closing 109+ last week. We estimate a potential maximum impact of JPY 6trn deterioration in Japan's trade deficit if Brent remains around 105-110. This amounts to a 5-6% depreciation in JPY. Even on capital flows, while equity inflows remains strong, bond outflows continue to remain elevated resulting in a net neutral picture on flows. JGB yields continue to soar with 30yr JGB above 4% (first since 1999) finding no love from local lifers.

5. While we see June hike as very likely, the bar for BOJ to outhawk current market pricing is very high. For e.g. the 2yr forward 1yr swap rate which can be viewed as one proxy for the terminal rate — has already risen above 2%. This is above the midpoint of the BOJ's estimated neutral rate range in nominal terms, and depending on the estimate used, is already in restrictive territory. But it is unlikely that hiking to such levels represents the consensus view among BOJ Policy Board members. Furthermore, market skepticism regarding coordination between the government and the BOJ is likely to persist, which will likely weigh on the JPY.

6. In summary, we believe JPY might remain headed towards 162. Any intervention is unlikely to make it rise below 156 levels. To break above 162, JPY needs 10yr UST around 4.85 & Brent above 120. On the upside 156 is the level below which JPY can sustain only if BOJ turns distinctly hawkish or Brent falls below 90. But with DXY finding strength last week, we expect a retest of 162 before 156.

[MacroSpectrum @MacroSpectrum]

A CONFIDENT XI MEETS A CORNERED TRUMP: We have released a detailed preview report on Trump-Xi summit as follows:

https://t.co/4OgYvAyXcj

1. President Donald Trump will be the first US leader in almost a decade to visit China when he lands in Beijing on Wednesday. His much-anticipated summit with President Xi Jinping delayed from March due to the Iran war offers the leaders of the world’s two largest economies a chance to reset personal ties and look for common ground on trade, technology and a range of other contentious topics.

2. But the timing could not have been worse for Trump or better for Xi. While Trump is lost in how to end the Iran war, Xi is perfectly settled in his new role as the leader of the new world. While Trump is moving from one crisis to another, Xi carries on with the aura of a confident leader. While both US & Chinese economies are doing well in their own core areas, it is the political leadership arena where Trump pales in comparison to Xi.

3. The main issue of discussion might be China's relationship with Iran and it's ability to influence Iran to accept US terms for opening up Strait of Hormuz. We believe China has significant leverage at this point of time. Not only in terms of it's excess reserves of 1.2 billion barrels but also it's ability to shift to new energy resources. In addition it can act as a guarantor for Iran because of their close commercial interests.

4. Trade, tariffs, AI might be other areas of discussion where both Trump & Xi can find common ground. Expectations include major Chinese commitments to purchase soybeans, energy – particularly LNG – and potentially Boeing aircraft. Such deals would help stabilize the US agricultural sector ahead of the 2026 midterms while assisting China in diversifying its energy supply away from the vulnerable Strait of Hormuz. The current effective tariff rate for Chinese goods is approximately 20% including the 11% before Trump 2.0 and around 10% since Trump 2.0.

5. On Taiwan, we believe even if Trump tries, he might not get it past either Congress or Senate. So, we do not expect Trump to commit on the Taiwan issue any more than what the previous US presidents have done.

6. To summarise, Xi goes into the summit with a far superior hand than Trump. China is fairly well insulated from the war’s impact, with a diversified energy system based on coal and renewables and with huge petroleum stockpiles. Before a shortage of oil becomes a problem for China, high gasoline prices will be a bigger problem for Trump. Xi can afford to ignore the Iran issue while he decides what commercial favors to give to it's allies.

7. From a market perspective, any comments from Trump/Xi on Iran conflict will be most sought after. In all likelihood, more trade deals and rare earth elements co-operation imply upside for both US & Chinese tech companies.

[MacroSpectrum @MacroSpectrum]

What we see ahead: Below is our weekly report on major economic data points in G-7 this week & our expectations:

https://t.co/wrGszWz3cQ

1. Following a solid April employment report, market participants will focus on the other side of the Fed’s dual mandate with Tuesday’s CPI and Wednesday’s PPI releases for April.

2. On the employment side, the April employment report showed solid gains on headline (+115k vs. +185k) exceeding our expectations of 75k. As a result, Fed officials are likely gaining confidence in the stability of the labor market. Hence, the risks to the inflation outlook appear more pressing at this point.

3. In that context, this week's CPI data for April must be keenly watched. We see core CPI inflation as likely accelerating to 0.29% m-o-m in April from 0.20%, largely due to technical factors associated with rent-related components. Our forecast translates into a y-o-y change of 2.8% up from 2.6% in the previous month. For detailed preview note on US CPI, please see below:

https://t.co/SBgUYou7ZI

4. In other US macro data, we have retail sales, PPI, existing home sales & initial jobless claims.

5. US economy seems to be holding well and employment is not a concern currently. With Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months. We still see a lone 25 bps cut in Q4CY26 as an insurance cut under Kevin Warsh as Fed Chair. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive.

6. 1yr-1yr US SOFR is currently at 3.72 where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%. We also like to put on 2*10 US SOFR steepeners around current levels of 22 for an eventual profit target of 40 with stop loss around 14 levels.

7. On the middle east conflict, Iran has said it is reviewing the US’s proposal and Trump signalled optimism about reaching a deal before his scheduled trip to China on 14 May.

8. In Fed related events, Senate is scheduled to vote Monday evening on Kevin Warsh’s nomination. While this could potentially slip a day or two depending on other Senate business, it is almost certain that the vote will take place before Powell’s term as Chair ends on Friday. Warsh would be taking Miran’s place on the Board, while Powell will stay on as a Governor past the end of his term as Chair.

9. In dated UST supply, we have $58 BN of 3 yr UST auction on Monday, $42 BN of 10 yr UST auction on Tuesday & $25 BN of 30 yr US bonds on Wednesday.

10. In RoW data points, we have UK job nos, UK GDP, German Zew survey and Eurozone industrial production.

[MacroSpectrum @MacroSpectrum]

US RATES: CARRY BETTER THAN DURATION: We have released a detailed note on where the US rates currently stand, what factors are driving the short end and long end yields and future trajectory:

https://t.co/jSok9ZLCWp

1. With Iran conflict dragging on more than two months, US bond markets are now stuck in a tight range. 10yr UST is hovering in the range of 4.30-4.4 and rate cuts or rate hike expectations are hovering around 0 by end CY26.

2. Crude oil continues to drive the near-term intraday moves for various assets, and the pullback in the oil price last week has contributed to the recent widening in swap spreads and the decline in implied rates vol. 10y swap spread has widened by as much as 4bps over a 1wk rolling window, which represents one of the sharpest outperformances in Treasuries relative to swaps in recent years.

3. We believe Fed being stuck in a brittle job environment and higher core PCE, rate cuts are out of window. But rate hikes too are distant as job environment is too shaky to be considered solid. Hence markets might be stuck around pricing in +/-10 bps of cuts or hikes by end CY26. Hence carry strategies and received vol positions make more sense than any duration exposure.

4. 1yr-1yr US SOFR is currently at 3.72 where we like to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%. We also like to receive 2*10 US SOFR steepeners around current levels of 22 for an eventual profit target of 40 with stop loss around 14 levels.

5. Next week we also have the Treasury refunding auctions with the 10y new issue scheduled on the same day after CPI. In recent years, there has been a notable tendency of the 10y refunding auctions to perform more poorly in comparison to the reopenings. Given that the foreign takedown for the 10y auction has been trending lower since peaking in January, we are mildly cautious that the upcoming 10y refunding could face some headwinds.

6. On Tuesday’s CPI itself, we see core CPI inflation as likely accelerating to 0.29% m-o-m in April from 0.20%, largely due to technical factors associated with rent-related components. Our forecast translates into a y-o-y change of 2.8% up from 2.6% in the previous month. It is worth noting that NSA headline CPI has generally come in below the fixings market-implied levels since the start of 2025. Even last month after the oil spike due to the Middle East conflict, actual NSA headline CPI came in below the extraordinarily high market expectation. Currently the CPI fixings market is implying 0.78% MoM headline.

7. On the short end, repo markets this week continued to show signs that liquidity in the system is plentiful. We think the recent move lower in repo has been a product of negative T-bill supply in March and April, as well as continued (albeit slower) reserve management purchases (RMPs). We think the next catalyst for a move higher in SOFR could come in July as Treasury warned that they will be increasing T-bill sizes “across the curve” once more, and that the TGA balance could reach $1TN towards the end of the month.

[MacroSpectrum @MacroSpectrum]

S&P 500: Epitome of Gamma Squeeze: Friday saw an unprecendented $2.6 TN notinal turnover in S&P500 options. We see this a case of sheer Gamma squeeze and lay out our case why this might be the last stage of current bubble.

https://t.co/NeqXsThacH

1. Friday saw a record $2.6 TN trading in notional S&P 500 options with a heavy skew toward call buying (almost 60%). The concentrated call purchases created a textbook gamma squeeze: dealers who had sold calls took on negative gamma and were forced to buy futures and equities to remain hedged, mechanically amplifying the rally.

2. But Friday’s Gamma squeeze was unusual to say the least. Normally when stocks go up, the VIX (fear/volatility gauge) falls. But on Friday, stocks were rising and VIX was staying high/rising because traders were aggressively buying call options on AI stocks, forcing market makers to buy more shares and helping drive a gamma squeeze higher.

3. The speculative call buying had become so aggressive on Friday that market makers were being forced to hedge at increasingly higher prices. When traders aggressively buy calls, dealers often take the opposite side of those trades and are then forced to buy the underlying stocks or index futures to remain hedged. That hedging activity pushes prices even higher, which triggers even more call buying, creating a reflexive feedback loop that can become self-reinforcing.

4. The $2.6 TN turnover notional in S&P500 options is staggering to say the least. In these options, retail share is at new highs, driven by Tech. The most traded options were in the following names, echoing previous weeks: TSLA, MU, NVDA, GOOGL/GOOG, AMD, META, AMZN, SNDK, INTC and AAPL.

5. We believe we are in the final stages of a bubble for sure. We believe Friday’s gamma squeeze should be a signal to exercise caution for investors. Chasing parabolic moves fuelled by leverage and options momentum may feel safe while prices are rising, but history repeatedly shows that the final stages of a bubble are often the most dangerous.

6. The simple passage of time will cause dealers to start to sell even if the market remains up here (charm). And likewise, if tensions in the Middle East don’t pick up and implied vol falls, dealers will have to sell down their hedges (vanna). While above are just mechanics, the important takeaway is that investors need to step away from these final stages of melt up from a risk reward perspective.

[MacroSpectrum @MacroSpectrum]

US CPI APR’26 PREVIEW: We have released a detailed preview note on the US CPI data for Apr'26 due on Tuesday next week:

https://t.co/SBgUYou7ZI

1. We see core CPI inflation as likely accelerating to 0.29% m-o-m in April from 0.20%, largely due to technical factors associated with rent-related components. Our forecast translates into a y-o-y change of 2.8% up from 2.6% in the previous month.

2. Positive payback from the BLS’s carry-forward imputation in October last year likely boosted both regular rent and owners’ equivalent rent substantially in April, pushing up aggregate m-o-m core CPI inflation by 9bp.

3. Our forecast for headline CPI inflation is 0.51% m-o-m in April or 3.7% y-o-y, driven by higher gasoline prices. Supercore service CPI inflation likely decelerated in April.

4. We expect core goods prices accelerated in April. Our forecast for core goods inflation is 0.20% m-o-m, up from 0.11% in March.

5. We expect core PCE inflation remained elevated at 0.28% m-o-m in April, following 0.29% in March. Our forecast for y-o-y core PCE inflation is 3.30%, up from 3.20% in March.

6. With Iran conflict continuing for more than 2 months now, we expect Fed to remain on hold for next several months. We still see a lone 25 bps cut in Q4CY26 as an insurance cut under Kevin Warsh as Fed Chair.

7. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.72 where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%.

8. We also like to receive 2*10 US SOFR steepeners around current levels of 22 for an eventual profit target of 40 with stop loss around 14 levels.

[MacroSpectrum @MacroSpectrum]

What we see ahead: Below is our weekly report on major economic data points in G-7 this week & our expectations:

https://t.co/VxilRGd91T

1. Absent any material breakthroughs in the US Iran negotiations this week, the data docket should be the main focus – namely, Friday’s April Nonfarm Payrolls.

2. In FOMC meet last week, despite no change to the forward guidance language, an easing bias on interest rate policy appears to have softened. US economic data remained solid last week, equity indexes set new records, and the hyperscalers renewed their capex commitments.

3. On Iran conflict itself, it seems to be settling into a low conflict long duration event like the Russia Ukraine war. Unless either party blinks, the stalemate is likely to continue. Inventories are meanwhile dwindling down fast and demand destruction has started happening in countries where price adjustments were made in response to crude price rise.

4. We see a worst-case scenario of crude oil jumping to $150 in end May-July, before settling to $110 in 4Q. The baseline scenario leaves oil at $100 this quarter and $80 in 4Q26. This could cut an additional 1% from global GDP and raise global inflation by a further 1.2%. As a net energy exporter, the US will fare better than a number of other countries.

5. In US macro data this week we have ISM services, JOLTS, trade balance & new home sales. On NFP itself we expect 75k headline and unemployment rate st 4.2%. For detailed preview note on the April NFP, please see below:

https://t.co/Y0qIzrHalz

6. There is no dated UST supply this week.

7. We continue to expect a lone 25 bps cut later this year under incoming Chair Warsh, but the case for easing is likely to depend more on cooling inflation rather than labor market stress.

8. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.70 where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%.

9. In Eurozone we continue to expect 2 hikes of 25 bps each in June & Sep as inflation expectations are rising sharply. Euro area HICP inflation jumped in April to 3.0% y-o-y and 3y ahead median inflation expectations rose notably by 0.5pp to 3.0%.

10. In Eurozone data this week we have Sentix, ECB wage tracker, German factory orders & German industrial production.

11. At BOE we now expect a single rate hike of 25 bps in July and then a status quo for REMCY26. We think the hike will ultimately be more than reversed, and see two rate cuts in H2 2027 (to 3.50%, which is likely close to neutral).

12. We also have RBA rate meeting this week on Tuesday where we expect RBA to hike by 25 bps to take the policy rate to 4.35%.

[MacroSpectrum @MacroSpectrum]

US NFP APR’26 PREVIEW: We have released a detailed preview note on the nonfarm payroll data for April due on 8th Apri, Friday:

https://t.co/Y0qIzrHalz

1. We expect nonfarm payrolls (NFP) in April to have decelerated to 75k in April close to the ytd average of 68k. Lead indicators for the labor market point to a modest acceleration in underlying employment trends, but in our view, this will be outweighed by negative payback after NFP overshot in March. With respect to the risks around our forecasts, there were upside risks last month due to the timing of the Easter holiday this year (April 5), the opposite applies for April.

2. The unemployment rate likely declined slightly in April, rounding down to 4.2%. Measures of layoffs have remained near cycle lows, and we have seen tentative progress in hiring and labor demand.

3. We expect average hourly earnings (AHE) remained subdued for a second consecutive month, rising just 0.2% m-o-m in April. Despite sluggish wage growth, we expect a rise in the workweek will lead to solid growth in aggregate private payroll income.

4. The aggregate labor force participation rate has dropped by 0.5pp ytd. This is volatile on a m-o-m basis and might reverse to some degree in coming reports.

5. Summary: NFP has been exceptionally noisy through the start of 2026, and our forecast for an April slowdown is largely driven by negative payback. Looking at a broader range of employment data though, the labor market appears stable, with tentative signs of reacceleration.

6. We continue to expect NFP to average just around 75k through the remainder of 2026, with the unemployment rate declining to 4.0% by year-end. Stable employment will likely keep Fed officials focused on upside inflation risks. We continue to expect a lone 25 bps cut later this year under incoming Chair Warsh, but the case for easing is likely to depend more on cooling inflation rather than labor market stress.

7. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.70 where we like to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%.