• Meanwhile in markets, boy did I get that one wrong, Fed Chairman Warsh’s first press conference after the FOMC meeting. Contrary to my expectations, Warsh performed as an inflation hawk and primed markets for rate hikes – not just a single lousy hike;

• The message I heard from Warsh is crystal clear. 1+1+1=3. Warsh stressed that inflation has been above target for more than five years while emphasizing the primacy of the two percent target. He also underscored that the labor market is most likely strengthening. And he said a couple of times financial conditions are easy except for the housing market. The takeaway: there is no reason to wait until later this year to hike. More importantly, Warsh, who really hates forward guidance, had a Freudian slip of sorts. When quizzed by journos about tightening and recent inflation data, he stressed several times that there’s another meeting soon, in July, and that more data will be available six weeks from now. And, lo and behold, fed funds futures now price in 8bps of hikes for that meeting;

• While I lean towards a July hike, Warsh gave himself a get-out-of-jail-free card to delay tightening to the fall (September) or even until after the midterm elections. With much fanfare, he announced multiple task forces that will offer proposals for overhauling the Fed’s open market operations, balance sheet, data gathering, and communication amongst other things. If those task forces deliver their recommendations later this year, Warsh could wait until December to start tightening. If he chooses this path of delay – a difficult path to walk if inflation remains clearly elevated month-after-month – my description of Warsh, window-dresser, will very much be bang on;

• Turning to some market commentary, US Treasury yields are higher still, though of the highs. The 2y is up 11bps compared to an earlier increase of 17bps (trading at 4.16). The 10y has retraced most of yesterday’s spike and is now only a bp or so higher than pre-Warsh levels. US equities didn’t like Warsh for obvious reasons: holding a mirror in front of punters, the suggestion being things might be getting out of hand. Both the S&P 500 and Nasdaq have shed more than a percent. Still, S&P 500 and Nasdaq futures are already off the lows, having erased half of the Fed-induced losses. Predictably, the broad dollar is higher. As a matter of fact, most of the Warsh gains remain intact. Japanese FX officials have woken up to a life-threatening problem: a potentially hawkish Fed. USDJPY almost breached the 161 handle before sagging to 160.6;

• USD OIS forwards have responded to the hawkish Warsh as I had expected they would. The now price in two hikes. Remember, I’ve been railing against pricing of just one hike, which at the time was sensical and completely non-sensical;

• With the US and Iran having electronically signed their truce deal, Brent crude futures have sagged lower, trading at $77.92 last. Futures are finding support at these levels, which is around the 200 DMA;

• Looking ahead, we have no less than four central bank meetings today. Chronologically: the Swiss National Bank, the Norges Bank, the Bank of England, and the Czech National Bank. All should be holds excepts for the Czechs, were a 25bps hike to 3.75 percent is expected. Finally, we have obligatory US jobless claims and a few ECB-speakers hitting the mic.

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