Good morning and Happy Fed Day,
 
A quiet session yesterday saw equities end lower with both the S&P 500 down 0.6%, equal-weight down 0.3% and Russell down 0.9%. The Dow bucked the trend, rising 0.6%. A move lower in both rates (2-5bp) and oil (-4%) didn’t provide much lift for equities overall and semis sold off, putting pressure on the headline index. S&P futures are modestly higher this morning but off their highs as we await new Fed Chair Warsh’s first FOMC presser, and the MAC Desk Watch Party, at 2:30pm.            
 

 
This morning’s retail sales came in ahead of expectations of expectations pretty much across the board. Headline was up 0.9% and if you strip out autos and gas it was still up a healthy 0.5%. The control group which feeds into GDP was up 0.7% above the 0.4% estimate. Motor vehicle/parts, furniture/home and apparel all bounced back after declines last month while electronics, department stores and food services all fell from last month. I’d imagine the latter will bounce back next month with the World Cup providing a tailwind. Ahead of Kevin Warsh’s debut as Fed Chair Treasury yields are hovering around unchanged and the US Dollar Index is modestly higher.
 

• US 2yr +1bps to 4.06%, 5yr -0bps to 4.17%, 10yr -1bps to 4.43%, 30yr -2bps to 4.93%
• USD index: +$0.10 to $99.38

Over the last couple of months Treasury yields and oil have been highly correlated but that relationship has started to fracture with the last leg lower in oil. The Federal Reserve is widely expected to leave rates unchanged this afternoon and the Statement is expected to evolve in a more hawkish direction removing the easing bias, which caused 3 of the 4 dissents last meeting. With that change and the Mayor of Dissenter Island (Miran) no longer on the Committee we could see no dissents for the first time in a while. The Summary of Economic Projections will also be updated with the biggest question whether Fed Chair Warsh submits his projections given his preference for less communication. Within the SEP inflation projections are expected to move up while the unemployment rate could tick lower. The DOTS will evolve in a hawkish direction - in March the median projected one cut, the question will be how many officials project a hike later this year (and just removing Miran’s wayward DOT will shift this higher). The press conference will be the main event as investors wait to see how Chair Warsh positions himself. He has talked about changing the Fed’s communication style so it will be interesting to see if he just stifles all of the questions falling back on “we’ll see how the data evolves”. Get your popcorn ready.
 
After dropping for several days, Brent crude is seeing modest gains, bouncing off its lows this morning and back to testing $80. Last night’s API crude report had inventories falling by 8.3M, a little less than last week’s 9.1M draw and almost doubling the 4.5M estimate. The EIA’s data comes out later this morning. The IEA now expects 2026 global oil demand to fall 1.1mb/d, downgrading their prior estimate by 700kb/d. 2027 demand is expected to increase 2mb/d in 2027. Supply is expected to fall by 3.9mb/d in 2026, the same as last month, but rebound by 8mb/d in 2027. That would create an oil glut next year. Gold and silver were slightly lower but have gotten back to unchanged, consolidating gains from last week. Bitcoin and ETH are down about 1-2%, continuing yesterday’s modest pullback following Monday’s sharp gains. Bitcoin is trying to hold $65K while ETH does the same at $1800.
 

 
 
European indices are mixed and generally around unchanged. Industrials and semis are among the leaders. Autos continue to come under pressure and Utilities lagged. Sweden’s central bank held its rate at 1.75% as expected and noted the likelihood of a rate hike later in the year has increased. UK CPI was below expectations and down from last month. The Nikkei was up 0.7% overnight with a batch of strong data including Machine Orders and Exports pushing manufacturing and industrial names higher. China was mixed. Hang Seng fell -0.7% as tech/AI gains were checked by broad weakness overall. Shanghai  advanced +0.4%. Comments by PBOC officials indicate China’s central bank could pivot to overnight rates as the main policy target, aligning more with central bank peers. Regulators will announce reforms to allow more early-stage, innovative tech companies to list on the STAR market, as well as encourage Hong Kong listed companies to dual-list on the mainland.     
 

 
Earnings:

• After-Market (Tues): LZB
• Pre-Market: JBL, KMX
• After-Market: SWBI

Economic Data:
US:

• Mortgage Apps: -3.8% w/w prior 10.8%; 30yr Rate 6.6% prior 6.6%
• Retail Sales/ex-Autos: 0.9%/0.8% vs. 0.5%/0.5% cons,. prior 0.5%/0.7%
• 10:00 Business Inventories
• 10:00 Pending Home Sales
• 2:00 FOMC (including SEP)
• 2:30 Warsh Press Conference

Global:

• Japan May Imports / Exports y.y: 12.5% / 17.0% vs 12.8% / 16.2% cons, prior 9.8% / 14.8%
• Japan April Machine Orders m.m: 8.7% vs 0.9% cons, prior -9.4%
• Japan Tankan Index: 13 vs prior 8  
• UK Inflation: 0.2% / 2.8% m.m / y.y vs. 0.4% / 3% cons., prior 0.7% / 2.8%
• UK Core Inflation: 0.3% / 2.6% m.m / y.y vs. 0.4% / 2.7% cons., prior 0.7% / 2.5%