US crude oil inventories fell sharply by 11.5 million barrels last week, marking the largest drop in almost a year. This decline was mainly due to a decrease in net imports of 1.8 million barrels per day, caused by lower imports and higher exports. Exports increased even with the smaller price difference between WTI and Brent, which narrowed to just $2.5 per barrel at the week’s start—the lowest this year. This indicates that exports might not stay at this level, suggesting a potential reversal in inventory reduction.

Tight Supply Situation

Currently, US crude oil inventories are 10% below the 5-year average, indicating a tight supply. In Cushing, the level is even lower, around 40% below the average, which means WTI prices are getting closer to Brent prices. The big drop in US crude inventories—11.5 million barrels—isn’t just about higher demand or seasonal changes. The main factor seems to be the sharp decline in net imports, which dropped by 1.8 million barrels a day. This means fewer barrels are coming in, and more are going out of the country. This situation usually doesn’t last long, especially as the price differences begin to close. It was surprising to see exports rise even with such a small price gap of $2.5 per barrel between WTI and Brent at the start of the week. At this narrow spread, there’s little motivation for international buyers to prefer WTI over Brent. This is the smallest difference we’ve seen this year, removing the usual incentives for exports. It suggests that the current export levels might not be sustainable. If the price gap stays this narrow—or gets even smaller—traders who are hoping for lower US inventories might find themselves unprepared if exports drop.

Regional Pricing Dynamics

The inventory gap is becoming serious. Stocks are now about 10% below the 5-year average, which raises pressure on local supply and supports higher US crude prices, especially during the busy summer months. The situation in Cushing is even more alarming, as inventory levels there are roughly 40% below the 5-year norm, causing WTI to trade closer to Brent than it has for some time. Such a change occurs only when supply at the delivery hub starts to affect prices more than global movements. With such low stock in Cushing, any supply issues—like pipeline disruptions, refinery changes, or weather disturbances in the Gulf—could impact futures prices. In the near term, we may see more focus on regional price differences rather than relying heavily on international benchmarks for domestic assessments. WTI’s closeness to Brent reflects not just a shortage but also traders adjusting to increased price pressures from within the US rather than looking overseas. Given the current situation, it’s crucial to monitor forward pricing trends, export volumes, and any changes at coastal terminals that might indicate whether export pressure is easing. If it does, the sharp inventory drop could level off—or even reverse—bringing net imports back to more balanced levels. Until then, pricing risks lean towards low inventories and ongoing short-term price increases. Short call spreads might feel more vulnerable, especially if lower Midwest stocks continue to decline. Additionally, any strategies based on a growing export margin could struggle as the Brent-WTI spread remains narrow. We’ll need to keep an eye on weekly Energy Information Administration reports—not just for the overall crude change, but for regional stock variations and total exports. If flows through the Gulf Coast begin to slow, current long positions will need protection. Otherwise, being overly exposed without hedging could quickly lead to losses. Create your live VT Markets account and start trading now.

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Chris Waller supports the idea of a rate cut at the upcoming July meeting. He believes tariffs will not cause long-term inflation, viewing them as a one-time event. Waller advised that the Federal Reserve should not wait for a significant drop in the job market before making cuts. While he recognizes the current strength of the job market, he also pointed out the potential for higher unemployment among recent graduates.

The Fed’s Stance on Interest Rates

The Fed has kept interest rates unchanged for six months, expecting inflation to rise, which hasn’t happened. Waller thinks it’s wise to lower rates and observe the inflation results. He stated that even a 10% tariff on all imports would have almost no impact on overall inflation. Waller hints at a more relaxed approach, suggesting that there could be differing opinions within the committee at the upcoming meeting. He commented, “I’m all in favor of saying maybe we should start thinking about cutting the policy rate at the next meeting, because we don’t want to wait till the job market tanks before we start cutting the policy rate.” This indicates a notable change in attitude. Waller seems more open to lowering the federal funds rate, not due to an impending recession, but because inflation is behaving better than expected. After six months of caution, the anticipated price increase has not occurred. Instead, inflation data has surprised positively by remaining low. Waller’s comments suggest a preference for acting before job market weaknesses arise instead of responding after they occur. His view that tariffs will have a limited effect on inflation counters earlier concerns that trade actions would create lasting price increases. This isn’t merely semantics; it affects the Fed’s entire strategy. If the Fed does not need to wait for clear job losses before cutting rates, expectations for future policy could shift significantly.

Concerns about the Job Market

The strength of Waller’s position is based on two key assumptions: first, that inflation is unlikely to rise quickly, and second, that cutting rates now could prevent a steeper downturn later. It’s particularly significant that a rate cut is being considered before any major job market crisis occurs. This indicates that Waller, and perhaps others, trust the current decrease in inflation more than they fear a sudden increase. The future path of policy depends heavily on whether this view is shared among voting members. If it is, the rates market may have to adjust its expectations for rate cuts as soon as July. This adjustment won’t happen alone. Eurodollar and SOFR futures, already leaning toward cuts later this year, will need to not only adjust nominal changes but also revise volatility expectations and forward rate spreads. We should note Waller’s concern regarding higher unemployment for recent graduates. While not an immediate policy driver, it suggests a broader issue about generational challenges in the job market. This is often overlooked in mainstream data but could be a growing concern for the Fed. The struggles of one group can sometimes indicate a wider economic weakness, so these signs should not be ignored. What should we take away from this? Keep an eye on positions that expect rates to remain steady over the summer; if more voices support Waller’s view, volatility will shift, and changes may happen sooner than many think. Traders who expect the Fed to wait for further job market issues may find themselves misaligned. In short, the current risk distribution around policy expectations is shifting. It’s also important to note that market reactions in the fixed income volatility area, especially at the short end, could be sensitive to this change in sentiment. There’s a clear difference between a central bank responding to weak data and one that proactively addresses anticipated issues. This influences how we perceive upcoming policy signals from the committee. In summary, we’ve transitioned from a period where rate cuts depended on conditions to one where they may be warranted without hesitation. Whether this change occurs in July or September is now a very relevant and tradable question. Create your live VT Markets account and start trading now.

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India: A Key Growth Driver The International Energy Agency (IEA) has shared its medium-term outlook, forecasting that global oil demand will peak by the end of the decade. In the U.S., demand is expected to decline, but not as sharply as last year, with electric vehicles projected to replace 5.4 million barrels per day by 2030. Oil use in power generation, particularly in Saudi Arabia, is likely to drop as gas and renewable energy take the lead. However, demand remains high in the petrochemical industry. Demand trends are shifting; China’s increase will be modest, while the drop in U.S. demand will be less severe due to lower prices and slower growth in electric vehicle adoption. India stands out as the largest growth driver, consuming 5.5 million barrels daily compared to China’s 16.6 million. If market conditions stay stable, the IEA predicts that oil market capacity will grow twice as fast as demand by 2030, mainly due to the U.S. and Saudi Arabia. The IEA points out that capacity growth will be strong at the start of the decade but will slow down as it comes to a close. Investors are urged to conduct thorough market research, considering the risks and emotional stress involved in market investments. Oil Demand Plateau By the end of the decade, projected oil market capacity is set to exceed demand by two-to-one. This could lead to a significant imbalance between production and market needs. The latest IEA findings suggest that strategies based solely on supply and demand may soon be outdated. Instead, companies will need to adapt to long-term trends that might not be immediately clear on price charts. The forecast that demand will plateau around 2030 does not just signal the end of traditional growth; it also has real implications for contract pricing and volume assumptions over various timeframes. For those involved in energy-linked derivatives, it’s crucial to consider how capacity expansion—especially from the U.S. and Saudi Arabia—will shape future market dynamics. The IEA states that U.S. output will remain a significant factor, even with a slowdown in domestic consumption. This indicates that market players should focus not just on domestic consumption trends but also on production growth and export potential. The U.S. seems set to impact global supply chains more than before, making price differences increasingly influenced by international flows rather than just local demand. Create your live VT Markets account and start trading now.

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The Canada Producer Price Index (PPI) for May decreased by 0.5%. This is more than the expected drop of 0.1%. In April, the PPI had already fallen by 0.8%. Producer prices increased by 1.2%, down from 1.9% the previous month. The Raw Materials Price Index fell by 0.4%, better than the earlier drop of 3.3%. Looking at the year-over-year data, the Raw Materials Price Index improved from -3.9% to -2.8%. These numbers reflect the changes in costs faced by producers over the past months. This information gives us insight into the Canadian economy. The sharper PPI drop of 0.5% suggests that producers are dealing with lower input costs. This follows an earlier drop of 0.8%, indicating a trend rather than a one-time event. We may see a slowdown in cost growth throughout production chains. Even with a 0.4% monthly decline, the improvement in the year-over-year Raw Materials Price Index highlights an interesting point. While raw materials prices are still falling, the rate of decline is less severe. There is some ongoing monthly softness, but overall, we see signs of stabilizing prices. Our team interprets this as disinflationary, indicating we haven’t yet seen a significant increase. The slower rise in producer prices, now at 1.2% instead of 1.9%, reinforces this idea. Richardson noted that PPI often leads consumer prices, making these figures especially relevant now. We expect that the declines in production and input costs will eventually lead to lower prices for goods. However, some more mechanized sectors may experience this effect more slowly. Markets trying to predict future inflation will need to consider these numbers. There’s no strong indication of a rebound or an increase at this point. The unexpected drop in monthly figures challenges earlier expectations. MacDonald had predicted May would show a gentler decline, but the sharper drop has changed that outlook. As a result, positions will likely shift toward anticipating softness in the market rather than support for prices. This doesn’t mean a complete change or a breakdown, but it does suggest we’re moving away from the idea of a short-term inflation spike. In our view, reduced cost pressure prompts adjustments across various time frames in trading. The near term should be approached carefully but confidently, especially in sectors sensitive to input costs and inflation. Since the changes are gradual rather than sudden, any adjustments in market volatility should consider the needs of individual traders. While we can’t expect immediate effects on final demand, the current trend is reducing pressure in upstream pricing. This eases the strain on front-month inflation indicators. With each new piece of data, we need to adjust our approach not only for direction but also for the rhythm of these changes.

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Gold prices have steadied just below $3,400 per troy ounce after briefly exceeding this level. The ongoing uncertainty in the Middle East is likely to support the metal’s value, but the sharp price increase since the beginning of the year may discourage large purchases. Next week, we expect data on gold deliveries between Hong Kong and China for May, which could showcase April’s strong demand from China. For gold to reach record highs again, we may need to see an escalation in the Middle East, like potential U.S. involvement in Iranian issues. The information presented includes forward-looking statements that come with risks and uncertainties. It is not investment advice, and individuals should conduct their own thorough research before making investment decisions. We do not take responsibility for errors or lack of timely updates and emphasize that investments can result in total loss. Neither the author nor the platform act as registered investment advisors, and this content is not intended as investment guidance. The author has no financial interests or connections with any mentioned companies and has not been compensated by any external parties for this writing. The author will not be liable for any errors, omissions, or damages related to this information. Gold has recently lingered just under the $3,400 mark, reflecting a mix of market hesitation and geopolitical concerns. The significant rise in gold’s value at the start of the year may lead to a temporary pause in prices, not due to lack of demand but as a normal cooling period after a steep increase. We can’t overlook how market positioning can trigger a halt, particularly when new catalysts are needed to reignite the upward trend. Keep an eye on the upcoming trade data between Hong Kong and mainland China. If May’s figures mirror April’s strong demand for gold—likely driven by currency hedging and local uncertainties—demand from the East is still strong. However, this alone may not be enough. For gold to hit its recent highs again, we need to consider additional geopolitical risks. The possibility of Western military involvement in the Gulf region remains a significant, unresolved factor. If the U.S. edges closer to direct conflict with Iran, we could see increased demand for safe-haven assets, not only in physical markets but also in futures and options. Hedgers might respond quickly given current open interest, as there has been little unwinding, indicating that defensiveness remains in portfolios. Right now, we are in a holding pattern. Volatility levels are steady, but there is a slight upward shift in skew—an early sign that some traders are pricing in tail risks for short- to mid-term options. This could lead to more aggressive protective bids, especially in call spreads if traders expect a rise due to new geopolitical developments. Traders in the derivatives market should closely monitor trends in implied versus realized volatility over the next two weeks. Short gamma exposure has been calm but could spike if prices push firmly above key resistance. In contrast, lingering prices may lead to theta burn for those who overpay for premium without strong directional conviction. No significant seasonal downturn is expected, but liquidity will play a crucial role. Watch for volume changes during key regional trading hours, as reactions to news may initially seem exaggerated before settling down. This is particularly relevant when macroeconomic data from Asia coincides with risk events in the United States. Adjust your risk exposure based not only on price movements but also on the timing and likelihood of external catalysts. Being flexible is better than acting too soon. In the short term, rate expectations are not the main drivers; rather, it’s fear and the flight to perceived safety that influence prices more significantly. It is also important to consider how futures curves interact with ETF inventories. Sudden inflows may indicate renewed retail interest rather than institutional rebalancing, which could impact volatility floors and the effectiveness of hedging strategies. While the current narrative focuses on defense and responses to potential escalation, the lack of price retreat suggests ongoing underlying demand. The next two weeks may not clarify the broader macro outlook, but heightened geopolitical tensions might test whether the current support levels are strong enough for another upward movement.

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In April, Canada saw a 0.3% rise in retail sales, which was lower than the expected 0.5% increase. The advance report revealed a 0.8% rise in March. When excluding car sales, retail sales dropped by 0.3%, while forecasts expected only a 0.2% decline. March’s ex-auto figure was adjusted to show a larger decrease of -0.8%. Preliminary May data suggests consumer spending could fall by 1.1%. At the time of the report, the USD/CAD exchange rate was 1.3713. The May data points to reduced shopping activity. Although specific reasons for the falling sales aren’t detailed, auto sales affected by tariffs might play a role. Additional information includes:

April Retail Sales Details

– Year-over-year increase of 5.0% in total sales. – Sales at motor vehicle and parts dealers rose by 1.9% from the previous month, with new car dealers increasing by 2.9% and used car dealers by 2.1%. – Sales at gasoline stations fell by 2.7% month-over-month. – Sales in sporting goods and hobbies went up by 1.0%. – Furniture, electronics, and appliances sales increased by 0.8%. – Food and beverage sales saw a 0.2% rise. – Clothing and accessories sales dropped by 2.2%. The current figures present a clear view of consumption trends and how larger economic pressures influence everyday spending. Although sales edged up slightly in April, they didn’t meet expectations, and the decline in auto sales was significant. The downward revision of March’s figure, combined with May’s drop, indicates that this isn’t just a temporary issue. Instead, we seem to be trending toward stagnation, if not decline. April’s 0.3% increase could be considered stable, but context is crucial. Expectations were higher, reflecting broader sentiment within the economy. The drop in sales excluding auto suggests households are cutting back on discretionary spending. This pattern isn’t limited to cars; sales at gas stations declined, and clothing retailers reported weaker performance. This isn’t a promising sign for consumer momentum as we approach summer. However, car sales performed better than expected, which might explain the overall headline figure. Without these strong car sales, the broader consumer story appears weak. The modest increase in food and beverage spending counters some weakness, but it wasn’t enough to change the overall trend.

Impact on Currency and Market Trends

Trends like these often affect rate expectations, especially in relation to inflation and GDP performance. This is important because price movements often consider future signals—when consumers show weakness, probabilities start to change. We’ve observed that when household spending slows, financial instruments related to short-term policies usually start adjusting before official revisions. For currency, while the Canadian dollar typically reacts more to energy exports and yield differentials, this retail data can still cause fluctuations, especially if it deviates from common expectations. The decline in gas station sales also reflects both price and demand shifts, impacting energy-related sectors. In contrast, gains in furniture and electronics couldn’t balance out losses in apparel, indicating either seasonal patterns or tighter household budgets. Looking ahead, the preliminary indication for May shows a possible 1.1% drop, which should be taken seriously as it follows a trend. This suggests demand in Q2 may be weaker than previously expected. Adjustments to incoming earnings expectations or CPI figures may be necessary in light of this data. When retail weakness persists over two months and coincides with hints of interest rate cuts or policy shifts, it can trigger significant reactions in interest rate markets. Even if these trends are caused by shifts within sectors, the overarching outcome remains the same: diminished consumer support leads to changes in outlook. Some subsectors, such as sporting goods, may rely on seasonal trends or promotions. However, when major categories like clothing and fuel experience declines concurrently, it carries more weight. It’s also important to note the downward revision of March’s sales, which raises concerns about the accuracy of initial estimates. This adds caution to May’s preliminary figures, suggesting we should view it as a warning rather than simply a number. Strategies that haven’t accounted for these trends may need adjustment. As economic reports continue to suggest weakness, reallocating resources becomes crucial. Any forthcoming communications from policymakers will also need to be viewed with this data in mind—we assume they’re noting these trends, too. Create your live VT Markets account and start trading now.

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The price of Brent Oil has jumped to $79 per barrel, reaching its highest level in five months. This increase is due to rising tensions between Israel and Iran, which have been ongoing for a week. These tensions bring new risks of supply disruptions in the oil market. Reports indicate that the oil prices are likely to be affected by developments in the Middle East conflict over the next week. If the United States intervenes alongside Israel, prices could rise even further, as President Trump plans to make a decision in the next two weeks.

Potential Blockade of the Strait of Hormuz

A possible blockade of the Strait of Hormuz raises significant concerns, as it is essential for transporting about one-fifth of the world’s oil supply each day. Such a blockade would severely disrupt the oil market and drive prices up, though the chances of this happening remain low. If Iran attempts to block the Strait, it would incur heavy losses, losing its ability to export oil and potentially upsetting China, its biggest customer. China relies heavily on oil from the Persian Gulf, so a blockade would have a significant impact. If Iran faces a crisis, the situation around the Strait could turn more unpredictable. The recent rise in Brent crude to $79 per barrel—its highest since five months ago—has been fueled by fears over the ongoing Israel-Iran conflict. The last week has seen increasing instability in the region, creating concerns about possible oil supply issues. While Middle East tensions usually affect energy markets, the current military and political climate suggests we should prepare for ongoing volatility. The Strait of Hormuz, through which nearly 20% of the world’s crude oil flows daily, is central to this situation. Any suggestion of tanker disruptions in this narrow route tends to make energy markets anxious, and rightly so. If this waterway were to close—though unlikely—it would quickly and severely drive prices up. However, it would also isolate Tehran and limit its ability to sell oil, especially to China, its main buyer. While the chances of a long-term shipping halt are low, the market is right to treat it as a potential risk. Trump, a key figure in the region’s policy decisions, has indicated he will make a choice within two weeks, possibly working with Israeli forces. Speculation has emerged that this U.S. alignment might involve military actions or new restrictions on Iranian oil exports. From a trading perspective, this opens a window for increased options—especially for short-term contracts, where geopolitical uncertainty raises energy risk.

Market Implications and Trading Strategies

Consequently, we have started analyzing crude options and volatility trends, especially in light of U.S. political timelines. The front end of the curve has already reacted, with premiums on upside calls widening, particularly for contracts expiring soon. Traders seem to be positioning for further price gains, possibly expecting a move past $80. However, those involved in options trading should be cautious: if diplomatic efforts gain momentum, implied volatility could decrease rapidly. It’s also essential to reevaluate correlation assumptions. Oil prices are no longer driven solely by fundamentals; instead, the risk-on versus risk-off dynamic tied to military events is starting to influence commodity-related investments. Historically, when Washington reacts in such crises, we tend to see a temporary price spike followed by a decline as supply chains adjust and Asian buyers change their purchasing strategies. Whether this pattern holds true this time depends on how much the conflict escalates. For now, positions in energy derivatives should be monitored closely. Being exposed to event-driven risks remains crucial, particularly in the options market where skew can indicate sentiment trends. No model can fully account for the delay in policy responses from Tehran or Tel Aviv, so careful management of delta and vega exposure is vital. We have analyzed several scenarios based on historical incidents—like the Suez Canal closure, the Gulf War, and tanker attacks—to understand potential price shocks if shipping routes are threatened, even momentarily. As always, liquidity in certain timeframes may tighten if news changes rapidly, so the timing of execution is more critical than usual this week. Monitoring order flow in OTC swaps could also provide an early indication of changing sentiment, especially if international desks in Europe start adjusting their positions away from paper barrels. Create your live VT Markets account and start trading now.

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A senior official from Iran recently stated that the country is open to discussing limits on uranium enrichment. This announcement comes as tensions rise with the US and amid Israeli military actions. Iran is particularly keen on talking with European nations about nuclear issues instead of the US. They have made it clear that they will not accept a complete halt to enrichment, especially given the current situation with Israel. This news has already impacted global markets, leading to a drop in oil prices. Attention is now on an upcoming meeting in Geneva, where the Iranian Foreign Minister will meet with European leaders. This development is positively affecting risk assets as discussions target concerns about nuclear activities. The role of European powers is crucial in this ongoing diplomatic effort. The statement from the Iranian official indicates a willingness to negotiate, but with limits. Iran is ready to impose restrictions on its uranium enrichment program but firmly opposes a full stop, particularly due to Israeli actions. Instead of dealing directly with Washington, Iran is choosing to engage with European countries, a move that appears strategic and symbolic. Global markets responded quickly, with crude oil prices falling, especially for Brent crude. Traders see Iran’s willingness to negotiate—even if only partially—as a sign of reduced geopolitical tension in the region. A lower chance of open conflict is leading to a more positive outlook in the commodities and foreign exchange markets. All eyes are now on Geneva. This week, the Iranian Foreign Minister will meet face-to-face with key European ministers. Investors seem to be reacting to the potential for diplomatic progress, shown by rising equity prices and narrowing credit spreads. This indicates that many are adjusting their strategies, anticipating that some risk scenarios are becoming less significant ahead of further developments. Iran’s offer for partial limits often reflects internal coordination aimed at achieving strategic goals, possibly buying time or softening international reactions. From a policy perspective, this does not signal a major shift, but rather a careful adjustment in response to both external and internal pressures. Changes in trading patterns suggest that traders are already adjusting to new volatility expectations, especially in energy and regional banks tied to Middle Eastern assets. Implied volatility for energy-related stocks has modestly decreased, and there is less demand for protection against falling oil prices. Weekly trading patterns in short-term interest rate derivatives reveal that investors believe central banks, especially outside the US, may not need to react to geopolitical events as quickly as before. However, there is less confidence in longer-term investments, indicating that traders are hesitant to predict a full resolution. When the Iranian envoy meets with European ministers, discussions are expected to revolve around inspection protocols and acceptable stockpile limits, rather than complete dismantling. These specifics are important. In terms of risk pricing, the difference between enriched uranium at 3.67% and over 20% is significant; it affects the anticipated timeline for nuclear capability. We see opportunities in spread strategies that take advantage of changing probabilities. Rather than making outright bets, we focus on relative value opportunities across different regions and asset classes that may behave differently. For instance, oil-linked currencies haven’t moved in tandem with oil prices, creating potential inefficiencies. As the Geneva talks move forward, we expect to favor instruments that can be quickly adjusted based on new information. It’s wise to concentrate on areas with enough liquidity for tactical adjustments—like medium-delta options expiring before the next IAEA deadlines. Overall, the market’s reaction—softening energy prices and rising risk assets—suggests a preference for limited engagement over unpredictable escalation. We are adjusting our strategies accordingly.

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Russia’s central bank surprised many in May by cutting its key interest rate by 100 basis points while still conveying a cautious approach. Recent data indicates that another rate cut may occur on 25 July, following gentler consumer price index (CPI) numbers. Russia’s inflation rate, adjusted for seasonal changes, dropped to 4.5% in May, down from 6.2% in April, getting closer to the 4% target. This trend suggests that year-on-year inflation could fall within the lower range of the central bank’s 7%-8% forecast for late 2025.

Forecast Update

Expect updates to the forecast before the next meeting. The USD/RUB exchange rate is not anticipated to change significantly because of these developments. In May, the Bank of Russia unexpectedly lowered its main interest rate by 100 basis points but communicated a more cautious policy tone. This contradiction primarily stems from the recent drop in inflation, which is edging towards its target. The annualized inflation rate, after seasonal adjustments, fell to 4.5% in May. This is a significant drop from April’s 6.2% and brings the rate close to the target of 4%. This indicates that the central bank’s strict inflation measures are beginning to produce results. If these numbers hold or decrease slightly in June, the central bank may consider easing again during the 25 July meeting. Current projections suggest inflation will be in the 7%-8% range by the end of 2025. However, recent reports hint that the actual outcome could gravitate closer to 7%, or even lower, if the current trends continue and geopolitical issues remain under control. The central bank plans to update these forecasts before the next policy review, and we will be attentive to any downward adjustments in inflation expectations.

Rouble Stability and Investment Strategy

The rouble is likely to remain stable. Despite the May rate cut, the USD/RUB exchange rate has remained mostly unchanged. Currency fluctuations are currently influenced more by trade flows, sanctions, and commodity prices than by interest rate changes. Therefore, we do not expect sharp movements as a direct result of monetary policy shifts. Given the recent cautious tone and steady foreign exchange response, we recommend a careful approach for positioning in interest rate instruments. It would be wise to monitor forward rate agreements and expectations in rouble-denominated futures as we approach the July policy decision. There may be opportunities if rates ease further without a change in policy tone—a divergence that could lead to market moves depending on how the yield curve reacts and how much easing is already factored in. We will closely watch any comments from Nabiullina in the coming days, particularly ahead of the forecast release. Any inconsistency between her statements and the economic data could signal early opportunities. Much depends on the July CPI numbers and the updated macro forecast. Any policy changes will likely be considered carefully, especially after the significant cut last month. We should also think about how these developments may affect implied volatility. If short-term interest rate movements become more frequent or unpredictable, options related to these rates might see significant shifts. Low implied volatility at this point could provide a good entry point, especially given the mixed messages from the central bank regarding easing and vigilance. Timing will be critical. Stay adaptable in your positioning, particularly at the front end of the yield curve. If we see surprises like we did in May, yields could respond quickly, leaving little time for adjustments. Create your live VT Markets account and start trading now.

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Markets stayed calm as the weekend approached, with uncertainties keeping them within a narrow range. Traders remained cautious due to concerns about possible US involvement in the Middle East conflict. Japan stated that it wouldn’t strictly follow the 9 July deadline in its trade talks with the US. Meanwhile, China and the EU were engaged in intense discussions about trade issues, and reports indicated that Audi might set up a plant in the US in response to US tariffs.

Economic Updates

Economic news included Japan showing a slow economic recovery with some weaknesses, alongside plans to cut JGB issuance by 3.2 trillion yen for 2025. In the UK, retail sales in May dropped 2.7%, against an anticipated decrease of 0.5%. Germany’s May producer price index (PPI) was slightly better than expected at -0.2% month-over-month, while business confidence in France remained stable at 96 in June. The euro and pound performed best among major currencies. US 10-year yields rose by 3.2 basis points to 4.423%. European stocks gained between 0.7% and 1.1%, in contrast to the S&P 500 futures, which fell 0.1%. In commodities, gold decreased by 0.5% to $3,353.09, WTI crude rose by 0.2% to $73.99, and Bitcoin increased by 1.5% to $105,935. The earlier commentary reflects a mostly stagnant market as the week ended, with geopolitical concerns affecting sentiment. This environment showed little movement in stocks and commodities, driven more by worry than solid news. Major foreign exchange pairs showed slight adjustments, with European currencies rising slightly, likely in response to mixed but generally stable regional data. UK retail sales for May were much worse than expected—almost three times the forecasted decline. This suggests that domestic demand might be weaker, possibly due to ongoing cost-of-living pressures or cautious consumer sentiment before upcoming events. If this trend continues without a broader decrease in inflation, short-term rate expectations may stay the same. German producer prices slightly above forecasts indicate marginal cost pressures in the industry, but not enough to prompt market shifts based solely on inflation concerns. French business confidence at 96 hints at a stable economy, neither significantly worsening nor improving. Japan plans to reduce its government bond supply by over three trillion yen next year, likely to ease the impact of rising borrowing costs while ensuring enough liquidity. Japan’s communications about moderate improvement but also fragility are clear. Their hesitation to set a date for trade talks suggests prolonged negotiations that could affect risk outlooks for the summer.

Corporate Adjustments

On the corporate side, there are reports of a new Audi plant potentially in the U.S., indicating that companies are adjusting their manufacturing and logistics in light of current and expected tariffs. This news could influence medium-term inflation expectations, depending on how much this reshoring raises domestic input costs. US interest rates rose slightly, with a 3.2 basis-point increase in the 10-year treasury, signaling mild changes in growth or inflation assumptions rather than a full market adjustment. In the equities market, European indices posted gains while US stock futures ticked down. This divergence can signify positioning ahead of key economic releases or expectations of regional outperformance driven by central bank policies. Gold’s decline and the modest increase in oil prices indicate that commodities are not seeing fresh interest despite ongoing geopolitical worries. This may suggest that investors believe foreign events, while concerning, are not yet causing significant economic disruption. Bitcoin’s rise above $105,000 may have less to do with fundamentals and more with traders rotating into or using it as a safe haven amid uncertainty. Looking at momentum and implied volatility across different asset classes, it’s challenging to identify a clear direction. Retail sales shortfalls and quiet bond issuance do matter, but they haven’t significantly changed yield curves or major currencies from their recent patterns. As trade tensions rise and macro surprises persist, conviction in the market is likely to remain low. This uncertainty influences how risk is managed, making it hard to justify large directional bets unless upcoming data shows a clear trend or significant outlier. Monitoring auction activity, economic releases, and options volume should help refine strategies and risk appetite moving forward, especially watching whether implied volatility remains low or starts to increase. The euro and pound’s relative strength may persist unless significant policy divergence disrupts pricing in the interest rate differentials. We will closely observe overnight positioning for any noteworthy shifts in flows that might suggest broader market changes. Create your live VT Markets account and start trading now.

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