Warsh's first meeting as Fed chair

EU mid-market update: Warsh's first meeting as Fed chair; Vance hints the text of MOU with Iran could be released as soon as today.

Notes/observations

- Fed is expected to hold rates steady at 3.5-3.75% at Kevin Warsh’s debut meeting as Chair and with Powell on the Fed's Board, but markets and analysts will intensely scrutinize the statement, new dot plot, and especially Warsh’s press conference for clues on whether the Committee formally drops its long-standing easing bias amid rising hawkishness on inflation. Warsh surely faces speculation over whether he will downplay the dot plot’s importance, introduce a new policy framework, or attempt to steer the Committee. Some analysts see Warsh could potentially signal the start of its gradual de-emphasis or outright phase-out - a move that would force markets to price in far more genuine uncertainty and volatility. The most recent oil price collapse below $80/barrel after the US-Iran interim deal has reduced near-term inflation risks from energy, potentially softening any hawkish signals the Fed was preparing to send before the agreement. All these create unusual uncertainty around how aggressively Warsh wants to reposition the Fed’s reaction function right from his first meeting.

- US Vice President Vance stated that the MOU text on US-Iran deal could be released as early as today. According to Al Arabiya leak (unverified), the 2026 US-Iran MOU is a concise bilateral ceasefire agreement that immediately ends hostilities on all fronts, lifts the naval blockade, restores shipping through the Strait of Hormuz within 30 days, provides immediate sanctions waivers and asset releases, and commits to a $300B+ economic rehabilitation package - all in exchange for Iran resuming pre-war traffic volumes and maintaining nuclear status quo. In contrast to Obama’s 2015 JCPOA - not ideal, but detailed, multilateral nuclear deal with technical restrictions on enrichment and centrifuges - this MOU prioritizes rapid war termination, front-loaded economic relief, and Hormuz reopening while deferring most nuclear specifics to a final agreement within 60 days.

- Rystad Energy forecasts Persian Gulf oil production will surge in August–September 2026, recovering 85–90% of lost volumes by early Q4, with full restoration delayed until January 2027. According to Kpler’s Amena Bakr, approximately 118 laden oil tankers carrying ~75 million barrels are currently stranded inside the Gulf and would begin moving immediately upon reopening. This will produce a sharp near-term uptick in traffic, but it does not equal normalization — it is simply trapped cargoes exiting the region. Most replacement vessels remain far from the Gulf, so full shipping capacity restoration will take considerably longer. Polymarket now assigns just 18% probability to Strait of Hormuz traffic normalizing by end-June v over 30% few days ago.

- Another real constraint could be the “Barnacle Squeeze.” Reopening the Strait is not a clean supply switch — it is a high-stakes machinery reactivation in the world’s hottest waters. Prolonged idling has caused severe biofouling on hulls, propellers, sea chests, coolers, and heat exchangers, raising drag while cutting cooling capacity exactly when vessels must run hard.

- Zhipu AI finally released its new open-source model GLM-5.2 (Max), which ranks #2 on Code Arena: Frontend (just behind now-unavailable Fable 5), leads Design Arena, and stands as the highest-ranked open model on Agent Arena (#10 overall). This marks the first time an open-weights Chinese model has reached this elite tier on respected practical agentic coding and design leaderboards. The model’s capabilities stem from a reliable 1M-token context window powered by IndexShare — an innovative technique that reuses a single top-k indexer across every group of four transformer layers, cutting indexer-related FLOPs by ~75% and delivering approximately 2.9× lower per-token compute at million-token scale.

- At $4.4 per million output tokens, GLM-5.2 undercuts Claude Sonnet 4.6 ($15), Opus 4.8 ($25), and GPT-5.5 ($30) by a wide margin — a pattern also seen with DeepSeek-V4-Pro at just $0.87. This China’s explosive open-model ecosystem is quietly rewriting the economics of AI deployment. Rather than competing solely on a single flagship model, companies like DeepSeek, Qwen, Kimi, MiniMax, and Zhipu are flooding the market with high-quality, low-cost models that excel at real-world tasks. A well-orchestrated panel of these models can now rival or surpass individual frontier models at a fraction of the cost, shifting the competitive advantage from raw model intelligence to routing intelligence, cost-per-task efficiency, and system-level reliability.

- US Commerce Department has delayed adding DeepSeek, CXMT, and over 100 other China-linked entities to the Entity List, despite interagency approval, in an apparent effort to de-escalate US-China tensions. This pause is notable because it runs counter to recent hawkish momentum - including DeepSeek’s reported use of restricted Nvidia chips and new US moves to close AI-chip export loopholes - providing short-term relief to affected Chinese AI and semiconductor firms while frustrating national-security advocates and non-Chinese competitors. The decision comes amid ongoing concerns about DeepSeek’s growing popularity amid Western coders, including Microsoft reportedly considering hosting it as a cheaper Copilot option, despite prior accusations from Anthropic and OpenAI of the Chinese lab illicitly extracting capabilities from their models.

- Semafor reported that Trump administration was exploring the exact strategies how to acquire government equity stakes in major AI companies before the government’s export controls on Anthropic further roiled the industry, following proposals for public-wealth-style stakes and previous involvement with Intel. The article noted that early-stage talks face scrutiny over potential market dilution, governance issues, and "state capitalism" concerns.

Asia

- Japan May Trade Balance: -¥378.6B v -¥547.6Be;; Exports Y/Y: 17.0% v 16.5%e; Imports Y/Y: 12.5% v 12.8%e.

- Japan Apr Core Machine Orders M/M: 8.7% v 0.5%e; Y/Y: 15.6% v 8.7%e.

- Australia May Westpac Leading Index M/M: -0.04 v +0.06% prior.

- New Zealand Q1 Current Account Balance (NZD):-1.1B v -1.0Be.

- Singapore May Non-oil Domestic Exports Y/Y: 94.8% v 30.3%e.

- PBOC Gov Pan Gongsheng said the central bank will explore ways to further improve its adjustment mechanism for short-term rates and increase overnight reverse repo operations at an appropriate time. PBoC adjusted its overnight repo and reverse repo mechanism and set a +/-25bp band around the seven-day reverse repo rate. Set out plans to give overseas institutions access to yuan liquidity, to establish offshore central bank repo facilities, and to pilot offshore RMB/FX trading in the Shanghai free trade zone.

Global conflict/tensions

- Concerns around the US-Iran deal to focus on timing and trust as opposed to term (**Note: Lebanon appeared to remain the primary risk to the deal).

- US VP Vance said the MOU text could be released as early as Wed, while US intelligence is reportedly pessimistic on Iran's willingness to make nuclear concessions.

Europe

- Bank of France (BdF) cut its 2026 GDP growth forecast from 0.9% to 0.5%.

- London Times Shadow MPC voted 5-4 for the BOE to raise rates by 25bps.

Americas

- Chile Central Bank (BCCh) left Overnight Rate Target unchanged at 4.50% (as expected) for its 4th straight pause under the current phase of its easing cycle.

Energy

- Weekly API Crude Oil Inventories: -8.3M v -9.1M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.18% at 637.12, FTSE -0.19% at 10,473.84, DAX -0.29% at 24,843.22, CAC-40 +0.09% at 8,455.09, IBEX-35 +0.23% at 19,206.78, FTSE MIB +0.02% at 52,441.50, SMI +0.17% at 13,784.90, S&P 500 Futures +0.15%].

Market focal points/key themes: European indices open mixed with a downward bias and failed to gain momentum through the early part of the session; markets seen hesitant ahead of risk events in the second half of the week; among sectors managing gains are technology and consumer discretionary; sectors leaning to the downside include industrials and energy; oil & gas subsector under pressure after Brent fall below $80; Citiycon receives takeover offer by G City; Hays sells Ops in six European countries to Meraki Capital reportedly MSC considering acquiring stake in Hapag-Lloyd; focus on FOMC rate decision later in the day; earnings expected in the upcoming US session include CarMax and Jabil.

Equities

- Consumer discretionary: Straumann [STMN.CH] +10.0% (raised profit outlook), Hays [HAS.UK] +1.0% (completes divestments), AO World [AO.UK] -2.0% (earnings).

- Industrials: BMW [BMW.DE] -6.5% (cut outlook), Hapag-Lloyd [HLAG.DE] +1.5% (MSC mulling to acquire stake in Hapag-Lloyd), Rheinmetall [RHM.DE] +1.0% (Indra finalises an agreement with Rheinmetall and MAN to use its platforms in contracts valued at €3B), Speedy Hire [SDY.UK] -1.0% (earnings).

Speakers

- ECB's Simkus (Lithuania) reiterated view that even if energy prices stabilized he would expect higher commodity prices to keep inflation pressure elevated for some time.

- Sweden Central Bank Policy Statement noted that the probability that the Key Rate to be raised in 2026 had increased. Range of outcomes for what might happen was large.

- Sweden Central Bank updated its Staff Projections which cut the 2026 CPIF forecast from 1.5% to 1.1% while raising the 2027 CPIF from 1.3% to 1.7%. Projections cut the 2026 Avg GDP from 2.5% to 2.2% and cut the 2027 GDP growth from 2.6% to 2.3%.

- Swiss KOF Institute Spring Economic Forecast cut the 2026 GDP growth from 1.0% to 0.8% and cut the 2027 GDP growth from 1.7% to 1.5%. Projections raised the 2026 CPI from 0.3% to 0.6% (below target, SNB has a 2% inflation target) and maintained 2027 CPI at 0.6%.

- Japan LDP official Onodera said to propose cutting the Food Sales tax to 1.0%.

- Iran said to again warn of response if Israel did not stop Lebanon attacks.

- IEA Monthly Oil Report (OMR) cut 2026 global oil demand growth from -80K to -1.1M (total demand seen at 103.3M v 104.0M ) and cut 2026 global oil supply growth from -1.5M to -3.9M. IEA set 2027 global oil demand growth at 2.0M (total demand seen at 105.3M ) and set 2027 global oil supply growth at 8.0M.

Currencies/fixed income

- Focus on upcoming rate decisions over the next two sessions (FOMC on Wed, BOE & SNB on Thurs).
Oil continued to move lower with Brent below the $80/barrel level.

- GBP/USD at 1.3420 after UK May CPI data was softer for the 2nnd straight month. BOE was expected to keep its Bank Rate steady on Thurs but the Shadow MPC was looking for a 25bps hike. Dealers noted that BOE Statement could contain a somewhat hawkish risks compared to the current patient approach, though recent US-Iran peace deal could temper it.

- EUR/USD holding around the 1.16 area as some caution remain on the US-Iran framework agreement. Dealers noted that Lebanon appeared to remain the primary risk to the deal.

- 10-year German Bund yield last at 2.93%, France 10-year Oat at 3.66% and 10-year Gilt yield at 4.75% 10-year Treasury yield: 4.44%; 10-year JGB: 2.58%.

Economic data

- (UK) May CPI M/M: 0.2% v 0.4%e; Y/Y:2.8 % v 3.0%e; CPI Core Y/Y: 2.6% v 2.7%e; CPI Services Y/Y: 3.7% v 3.6%e; CPIH Y/Y: 3.0% v 3.1%e.

- (UK) May RPI M/M: 0.2% v 0.5%e; Y/Y: 3.1% v 3.3%e; RPI-X (ex-mortgage Interest Payments) Y/Y: 3.0% v 3.0% prior; Retail Price Index: 415.3 v 416.4e.

- (UK) May PPI Input M/M:0.2 % v 0.5%e; Y/Y: 8.7% v 8.8%e.

- (UK) May PPI Output M/M: 0.5% v 0.5%e; Y/Y: 4.0% v 4.0%e.

- (HU) Hungary Apr Average Gross Wages Y/Y: 9.0% v 8.9%e.

- (AT) Austria May Final CPI M/M: 0.1% v 0.1% prelim; Y/Y: 3.7% v 3.7% prelim.

- (SE) Sweden Central Bank (Riksbank) left the Repo Rate unchanged at 1.75% (as expected) for its 6th straight pause under the current phase of its easing cycle.

- (ZA) South Africa May CPI M/M: 0.7% v 0.8%e; Y/Y: 4.5% v 4.7%e.

- (ZA) South Africa May CPI Core M/M: 0.2% v 0.3%e; Y/Y: 3.8% v 3.9%e.

- ECB Wage Tracker: Sees wages +2.6% in 2026 v 3.0% in 2025.

- (UK) Apr ONS House Price Index Y/Y: 3.8% v 0.0% prior.

- (EU) Euro Zone May Final CPI Y/Y: 3.2% v 3.2% advance; CPI Core Y/Y: 2.6% v 2.5% advance.

Fixed income issuance

- (IN) India sold total INR240B vs. INR240B indicated in 3-month, 6-month and 12-month bills.

- (DK) Denmark sold total DKK2.21B in 2028 and 2035 DGB Bonds.

- (SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2033 and 2036 Bonds.

Looking ahead

- (CO) Colombia May Consumer Confidence: No est v 13.7 prior.

- (AR) Argentina May Budget Balance (ARS): No est v 632.8B prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell combined €2.5B in 2047 and 2053 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.5-1.75B in 6-month and 12-month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2038, 2040 and 2044 bonds.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays.

- 06:00 (IE) Ireland Apr Trade Balance: No est v €3.6B prior.

- 06:00 (IE) Ireland Apr Property Prices M/M: No est v 0.0% prior; Y/Y: No est v 6.5% prior.

- 06:00 (EU) European Union to sell combined €4.0B in 3-month, 6-month and 12-month bills.

- 07:00 (US) MBA Mortgage Applications w/e Jun 12th: No est v 10.8% prior.

- 07:00 (ZA) South Africa Apr Retail Sales M/M: No est v 0.1% prior; Y/Y: 2.0%e v 2.6% prior.

- 07:00 (RU) Russia to sell OFZ Bonds.

- 08:00 (BR) Brazil Apr Economic Activity Index (Monthly GDP) M/M: 0.6%e v -0.7% prior; Y/Y: 1.6%e v 3.1% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) May Advance Retail Sales M/M: 0.5%e v 0.5% prior; Retail Sales (ex-auto) M/M: 0.6%e v 0.7% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.5% prior; Retail Sales Control Group: 0.4%e v 0.5% prior.

- 09:00 (NL) ECB's Sleijpen (Netherlands).

- 10:00 (US) May Pending Home Sales M/M: 1.0%e v 1.4% prior; Y/Y: No est v 3.3% prior.

- 10:00 (US) Apr Business Inventories: 0.5%e v 0.9% prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia Q1 Preliminary GDP (2nd reading) Y/Y: No est v -0.2% advance.

- 12:00 (RU) Russia May PPI M/M: No est v 6.1% prior; Y/Y: No est v 5.5% prior.

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Target Range unchanged between 3.50-3.75% rang.

- 14:00 (US) FED SEP Projections.

- 14:30 (US) Fed Chair Warsh post rate decision press conference.

- 17:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Target Rate by 25bps to 14.25%.

- 18:45 (NZ) New Zealand Q1 GDP Q/Q: 0.8%e v 0.2% prior; Y/Y: 1.0%e v 1.3% prior.

- 21:00 (CN) China May Swift Global Payments (CNY): No est v 2.9% prior.

- 23:30 (JP) Japan to sell 12-Month Bills.