Hi YXI friends,

The Strait of Hormuz stays shut. Oil prices near fresh highs. A hawkish FOMC from a leaving Fed Chair. Four Mag-7 earnings.

What could go wrong?

So far, most of the noise has manifested in the oil and rates markets.

Equity indices are remarkably resilient at their highs. Investors have only been offloading the riskier part of the equity holdings (e.g. high beta growth names), while Mag-7s are holding well. Only META suffered the fate of a post-earnings selloff.

We will have in-depth pieces on individual Mag-7 earnings.

But a quick review of the FOMC first.

In the FOMC, there was a meaningfully hawkish update in the language around inflation.

The word 'somewhat' has been dropped, making the inflation characterisation more forceful. The explicit attribution to 'the recent increase in global energy prices' now frames inflation as potentially persistent rather than residual.

Indeed, in the press conference, Powell emphasised that the Fed is not concerned by the labour market at all. Several Fed members (although not yet a majority) believed that the stance towards the interest rate decision should be more explicitly neutral between a “hike” and a “cut”.

Moreover, while the textbook inflation shock from energy prices is "short-lived” and likely mean-reverts, the Fed is unsure about how it compounds on the tariff impact. They are in absolutely no rush to cut rates before observing more data.

My view is that yesterday’s meeting may well have concluded the rate cutting cycle. The question is now how long the base rates can stay at the current level (3.64%) before the Fed hikes it.

Perhaps in 2027, so we have at least a year of grace period not to U-turn the rate cut decision at the end of last year and time to see how inflation data laps the energy shocks of this year.

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