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Will the Real Kevin Warsh Please Stand Up?
Kevin Warsh’s first press conference as Fed chair after last week’s FOMC meeting settled a question that the markets had been debating for a year: Which Warsh would show up? In the past, Ed and Elias explain, Warsh hawkishly prioritized fighting inflation, but he presented himself as a dove when auditioning for the Fed chairmanship. Would Chair Warsh be some new hybrid? The hawk won: The FOMC swung to a tightening bias as expected, and Warsh’s rhetoric was hawkish point for point. The bottom line: Investors would be well advised to position for a chair who will advocate for raising rates if the data demand it, not for lowering them just because the President demands it. … Also: Ed reviews “The Drama” (+ + +).
ECONOMIC WEEK AHEAD: June 22-26
The US economic calendar is mostly quiet this week, but Thursday packs a heavy data load: final Q1-2026 GDP, May PCED, May durable goods orders, and weekly jobless claims. Lots of Fedspeak will be provided by FOMC participants this week. They will not lack for opinions to compare with those Fed Chair Warsh expressed in his debut presser last week. Globally, the Bank of Canada's Tiff Macklem speaks alongside Tuesday's May CPI release, and flash PMIs from Germany, France, the Eurozone, and the UK also drop on Tuesday. On Wednesday after the close, Micron Technology, arguably one of the world's most important companies, reports fiscal Q3 earnings (chart). Wednesday's FOMC meeting reset the bar. The June Summary of Economic Projections raised the median 2026 federal funds rate projection from 3.4% to 3.8% and the median 2026 core PCED inflation projection from 2.7% to 3.3%. Nine of 18 dots now pencil in hikes by year-end. The 2-year US Treasury note jumped to 4.19% in response (chart). Warsh's first press conference left no ambiguity. He called inflation "a choice," insisted price stability is the FOMC's number-one goal, and signaled the Fed will look through any supply-side disinflation from Iran. We continue to expect a first hike as soon as July. That expectation is more hawkish than the markets’, which put the odds of a hike in July at just 38% and one by September at 92%. Here are the key economic releases most likely to shape investors' thinking this week: (1) GDP. The final reading of Q1-2026 GDP (Thu) should hold near the 1.6% second estimate (chart). The Atlanta Fed's GDPNow model has Q2-2026 tracking 3.0% saar as of June 17, led by surging fixed business equipment (+13.8%) and goods exports (+15.2%) (chart). The AI-led capex cycle remains the engine of the Roaring 2020s. (2) PCED. May's headline and core PCED (Thu) are expected to be up 0.38% and 0.24%, according to the Cleveland Fed's Inflation Nowcasting. On a y/y basis, the numbers are hot at 3.97% and 3.30%. April's headline and core PCED inflation rates were 3.8% and 3.3% y/y. May's CPI rose 4.2% y/y, and PPI Final Demand rose 5.9% (chart). The risk again skews to an upside surprise. (3) Unemployment. Initial unemployment insurance claims (Thu) totaled 226,000 in the latest week, with the four-week moving average continuing to rise to 223,200 (chart). Continuing claims were 1,810,000 in the week ended June 5, with the four-week moving average rising to 1,780,000. (4) PMIs and business surveys. S&P Global's June flash PMIs (Tue) follow May's final readings of 55.1 for manufacturing and 50.7 for services (chart). The week's regional Fed business surveys include Richmond (Tue), Chicago (Thu), and Kansas City (Thu). Both the ISM national M-PMI and the regional Fed average have turned higher in recent months, confirming that the manufacturing recovery is broadening (chart). Prices-paid components remain elevated, with the regional average at 55.2 in May, reinforcing the upside inflation risk. (5) Consumer sentiment. The final June University of Michigan reading (Fri) follows June's preliminary print of 48.9, with current conditions at 48.4 and expectations at 49.3. The more important numbers are the one-year and three-year inflation expectations. The former should decline along with the price of gasoline (charts).
GLOBAL MARKET CALL: The Fog Of War Is Lifting
As we’ve flagged in recent weeks, an end to the conflict in the Middle East should see many foreign stock markets outperform the US. Lower oil prices reduce global inflationary pressures, give central banks room to ease policy, and tend to benefit oil-importing economies, particularly in emerging markets, more than the US, which exports oil. Last week’s tape delivered exactly that, with Asia leading the Go Global trade higher. Here's more: (1) Stay Home vs Go Global. EM ex-China (EMXC) dominated the week as the peace dividend filtered through to the regional names most exposed to lower energy prices and the AI capex cycle. The semiconductor trade continues to lead, which is why Korea and Taiwan sit at the top of this week's leaderboard. Korea led with an 11.0% gain for the week, with Taiwan, EM ex-China, the EM Index, Japan, and EM Asia all up between 3.7% and 7.2% (chart). External to Asia, moves were modest in either direction. The US SPY rose 0.7%, while China was the worst in the panel at -5.6%. The US MSCI outperformed the Developed World Ex-US MSCI from 2010 to 2024. Since then, they have performed about the same (chart). Emerging markets are doing the heavy lifting for Go Global (chart). (2) Sectors. In the Developed World, Telecom is up 52.2% ytd, Tech 23.4%, Energy 19.7%, and Basic Materials 18.7% (chart). In the Emerging Markets, Tech is up 35.8% ytd, followed by Industrials, up 19.0% (charts). (3) Yields. Sovereign bond yields are easing on hopes that the ceasefire holds. The US 10-year is at 4.46%, down from the May peak (chart). Falling oil prices give central banks room to lean dovish where the data permit. (4) Forex. The US dollar index rallied to 100.8 after the FOMC’s hawkish reset reinforced the rate-differential advantage in its favor (chart). Dollar strength supports the Stay Home trade at the margin and is a near-term headwind for the price of gold. The EM MSCI currency ratio is at 63.17, still pinned near the bottom of its multi-decade downtrend (chart). EM equities are outperforming despite the currency headwind. (5) Bank of Japan. Following the BOJ’s latest rate hike, the main policy rate is at 1.00%, with the 2-year JGB yield at 1.38% pricing in roughly two more hikes from here (chart). The 10-year JGB is at 2.61%, off its recent peak but still at multi-decade highs (chart). Yet the yen is at 160.86 against the dollar and looks ready to break through 160 despite the BOJ's tightening (chart). Intervention risk continues to surface. A weak yen is a problem that the BOJ can’t ignore much longer. We are sticking with overweighting Go Global, with Asia ex-China leading the way.
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