During the European trading session, the UK’s Consumer Price Index (CPI) report was released, meeting expectations and not expected to change market prices. The upcoming agenda includes the final CPI reading for the Eurozone and speeches from several European Central Bank (ECB) officials. In the American trading session, the US Jobless Claims will be announced earlier due to the Juneteenth holiday. Initial Claims are expected to be 245K, down from 248K, and Continuing Claims are predicted to be 1,932K, slightly lower than the previous 1,956K. Initial Claims have been stable within the 200K-260K range since 2022, while Continuing Claims have reached a new high for this cycle. Typically, claims rise during the summer, and the increase in Continuing Claims likely points to job search challenges amid economic uncertainty, rather than a rise in layoffs. Later, the Federal Reserve (Fed) will reveal its decision on the Federal Open Market Committee (FOMC), which is expected to keep rates unchanged while examining the impacts of recent policy and economic events. The Fed’s Summary of Economic Projections (SEP) suggests two rate cuts in 2025. There is also growing concern over the Israel-Iran conflict, as the chances of direct US involvement increase. Traders were initially worried about an attack during the Asian session, which did not happen, but the next 24 to 48 hours might be crucial. Overall, the current data offers a stable ground for risk positioning, but small changes could shift the balance. Much of the recent market behavior reflects a lukewarm response to the morning’s inflation report. The UK CPI meeting predictions no longer significantly influence broader monetary expectations—markets have shifted their focus from short-term UK data to more structural pressures and policy differences. This is evident in how little asset prices moved after the report. Eurozone data will be out soon. While a final inflation report rarely causes big movements, comments from monetary officials could shift expectations if their tone changes from previous statements. Lagarde’s past comments suggest few surprises, but Villeroy and others might sometimes present different views. If any of them sound more hawkish than expected, short-term rates could react. There’s no need to expect a major shift in policy, but even small comments could influence the curves slightly. Due to markets being closed mid-week, the US has an accelerated schedule for releasing data. Jobless claims present an interesting contrast: new registrations remain stable, while long-term numbers, which are revised slowly, indicate some issues. This discrepancy is significant. Initial Claims show no clear upward trend, yet the persistent Continuing Claims suggest that it’s becoming harder to match job seekers with openings. This doesn’t indicate a rapidly weakening job market but rather a slowdown in rehiring after layoffs from months ago. In previous cycles, summer often brought higher claims due to temporary shutdowns or seasonal hiring changes. This situation appears similar. However, there’s a new tension: unlike in past years, many indicators are now leveling off. The labor market issues—whether from geographic mismatches or sector cool downs—are no longer isolated. This prompts the market to reconsider whether the Fed can tolerate higher unemployment levels than previously thought. Next, attention will shift to Washington. Market participants expect the FOMC to keep the target federal funds range unchanged. However, the updated economic projections will be more intriguing. Powell has made it clear that inflation outcomes are key for rate cuts. But the language around economic activity and projections for next year will be just as important. Dot plots and long-term forecasts may reveal growing disagreements within the committee, which often leads to increased bond volatility. Geopolitical tensions also need to be noted. The increased discussions about risks in the Middle East have reduced liquidity during certain trading hours, particularly in Asia. Although no immediate escalation occurred overnight, market hedges remain costly and are likely to continue being so. Equity futures, interest rate forwards, and certain commodity-linked derivatives show wider tail distributions, indicating that investors are remaining cautious rather than opportunistic for short-term gains. During these times, earlier beliefs about market movements become less reliable. Everyone is waiting for the next major catalyst to break the range, but with each piece of data reinforcing stability instead of volatility, time premiums decrease, and realized volatility remains low. This pattern often frustrates momentum traders, especially in derivatives where time decay happens faster than confidence builds. So, instead of chasing market moves, it’s wiser to observe closely and act gradually. Herd behavior tends to surge when traders get weary of stagnant ranges. It’s often the second-tier data—like labor components, service prices, and sentiment measures—that shift the risk balance. Primary data rarely surprises anymore; changes usually begin at the margins.

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