Financial markets continued to reflect optimism that a US-Iran peace deal will soon reopen the Strait of Hormuz, triggering a decline in geopolitical risk premiums across asset classes.Investors are unwinding defensive hedges, as evidenced by Brent crude oil prices plummeting overnight by 5.3% to USD 94.30 per barrel, trading below the key 100 threshold for three consecutive days. Macroeconomic anxieties over high energy prices triggering second-round inflationary pressures receded, sending the US Treasury 10Y yield down to 4.48% from this month’s peak of 4.69%, while propelling the S&P 500 Index to a fresh record-high of 7,539.
The DXY Index’s tight consolidation between 98.9 and 99.5 best reflects the "on-again, off-again" volatility of the US-Iran negotiations. Neither Washington nor Tehran has established a definitive trend, with breakthrough headlines routinely followed by diplomatic standoffs, keeping the currency market in a state of paralysis. Nonetheless, the playbook indicates downward pressure on the greenback when hopes of a positive outcome emerge, and the USD catching a defensive bid when both sides disappoint.
We expect the Trump administration to look past today’s higher PCE inflation data. Consensus expects an increase in April’s headline inflation to 3.8% YoY from 3.5% in the previous month, and core inflation to 3.3% from 3.2%. The June FOMC will provide insight into how much the Fed has changed its monetary policy conduct under newly sworn-in Kevin Warsh. Given his disdain for forward guidance, Warsh may abstain from providing projections in the Summary of Economic Projections to avoid disappointing President Trump or alienating markets. While the Fed is seen pivoting towards lower guidance, other major central banks are retaining clear communication and pragmatic policy execution to anchor inflation expectations.
Quote of the Day
“Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”
Plato
May 28 in history
In 2025, the US Court of International Trade ruled that President Trump exceeded his authority in using the International Emergency Economic Powers Act to justify his Liberation Day tariffs.
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