Hi YXI friends,

On Tuesday, the market initially rallied on hopes of US Navy escorts in the Strait of Hormuz, only to give up all gains when the Navy refused such requests, as the risk of being attacked is too high.

The main risk I read here is that the US-Iran war may not be like the tariff negotiations Trump conducted before, during which he could easily dial up or dial down the aggression as he wished. Instead, we are in a messy process in which the US doesn’t exert complete control and faces an opponent interested in some degree of cooperation.

That means volatility and confusing cross-asset movements could sustain for a while, and we just have to read the market one day at a time.

CPI came out today in line with expectations, and the market hardly reacted. The real question is the March numbers released in April, as the oil prices spiked relentlessly in the past two weeks.

Housekeeping: I will no longer provide the chart “link” with each chart. This is because 1) I have tracked the usage of these links, and the time input vs actual usefulness is disproportionately low, and

2) I am moving onto more proprietary chart data and annotation over time, which will not support chart links anyway.

However, I endeavour to make these charts as readable as possible even on mobile devices.

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The Headline and Core CPI data came in both in line with expectations. We are not yet seeing the heightened impact of oil in the data.

So far, the downward trend has remained intact despite tariff concerns over the past year. As tariffs can only be capped at 15% due to the Supreme Court ruling, inflation will likely decline further in the coming months, absent the oil price shock.

Of course, the oil shock is a major factor that will raise both energy prices and producer input costs globally, so the above comfort is not very useful unless we can see a quick end to the US-Iran conflict.

In terms of the component MoM movements, goods prices have been largely flat except for apparel. Shelter is also increasing at a benign pace (0.2% Mom). Medical services grew faster than in January, but transportation prices slowed. However, I suspect higher fuel costs could drive higher airline fares in the coming months.

Overall, this is a benign set of readings. In the absence of the oil price shock, it would have been the right conditions for the Fed to lean further dovish.