Weekly Macro Note: FOMC Week, Asia Bounce?, Takes Two to TACO, Crude Roadmap, & More

In this Weekly Macro Note - we take a look at the FOMC week ahead, look at Japan rate hike odds, discuss the possibility of a bounce rather than ATHs in Asia, talk TACOs, the crude roadmap, and more.

Don Johnson (@DonMiami3), Chief Economist

Good Sunday evening MacroEdge Readers & Community,

This evening we’ll be discussing a plethora of topics - looking at the FOMC week ahead, as well as what data will accompany it. Yesterday evening we discussed the latest developments from the Middle East - including the latest on the Strait of Hormuz and Bab-el-Mandeb traffic trends. For those that caught the Redeye Macro Note, I will try not to repeat too much of what was covered in reviewing the TACO headlines yesterday - but I suspect the Houthi attack on the Aramco refinery played a major role in the US calling off attacks this weekend. Overall, until we get through the FOMC week and get a pulse on what the Fed, now under Warsh, expects to do the remainder of the year, ranges will remain in place for the time being. Additionally, I expect the second half of the year to deliver a very binary outcome (discussed in Weekly Macro Note of two weeks ago) in either a final crack-up leg higher before the Fed is forced to take action and finally hike due to higher inflation, or this sideways intervention action sort of continuing through midterms by which point we could start to see the winds leave the sails of the entire AI/data center/momentum trade more broadly.

Because the stock market is in fact the economy under this ‘i-shaped’ regime, there are a lot of forces well beyond what we can see at face value that have an interest in keeping the 2026 party going. While inflation and war drove equities to new highs in the first half of the year as the war kicked off, this momentum has been stalled since May as inflation has been elevated, and oil prices refused to return to pre-war levels. Oil prices, along with yields and FOMC discussions this week, will play a key role in determining how the above-mentioned outcome resolves.

Prime Minister Netanyahu will also visit the United States this week, and I suspect that we see an update on those discussions before the end of the week when it comes to the Iran-war situation. The Houthi involvement clearly marked a point on the escalation ladder at which US leaders were not comfortable continuing to wade into.

On the futures front - the Nasdaq is up about 1%, CL (WTI spot) is down roughly 5% - though technically continues to look very positive, Bitcoin is near $64,000 - also about a 1% move, and these futures moves based on Saturday headlines can all change on a dime, so I wouldn’t read too much into them. On the Asian market front - which I will also touch on below - Korea and Japan are at possible technical spots for a bounce - though it appears unlikely that they will hit new all-time highs for some time without massive government/central bank involvement, coupled with re-leveraging.

Keep in mind that the war itself can not be stopped for long in order to keep equities rising at this point. The market needs further inflation for multiple expansion to continue - which is already at very thin levels historically (even though the juniors on X think they’ve got it all figured out… or we’re just Argentina in the not-so-distant future)...

This evening we’re going to cover the following:

• Report Schedule for the Week

• Macro Week Ahead

• FOMC Week

• Asia Bounce?

• Macro Data Review of the Last Week

• Takes Two to ‘TACO’

• Crude Roadmap Simplified

Not yet a paid MacroEdge Ozone subscriber? Upgrade to paid to get all of our research, reports, data, strategy, commentary, and much more below:

Report Schedule for the Week

• (Tuesday) War Note & Non-Op Oil and Gas Opportunities

• (Thursday) Midweek Macro Note, Portfolio Strategy Update, Oil and Gas Research Coming Soon

• (Saturday) Redeye Macro Note

• (Sunday) Weekly Macro Note

Macro Week Ahead

• Monday: N/A

• Tuesday: Conference Board Sentiment

• Wednesday: FOMC Decision & Rate Statement

• Thursday: Real GDP, PCE, Bank of Japan Rate Decision (Evening - US time)

• Friday: n/a

Major corporate earnings this week:

• Microsoft (Wednesday)

• Meta (Wednesday)

• Apple (Thursday)

• Amazon (Thursday)

Energy Earnings:

• Baker Hughes

• Shell PLC

FOMC Week

There is a relatively high chance of a rate hike this week. Warsh has left the option open, and with energy prices as high as they are (I know people on X say that’s not inflationary) - I would give it about a 50% chance right now given the dissents last time around. Either way, I expect the actual vote to be extremely close - and if that is the case and the Middle East supply shock continues - then the Fed will likely move in September instead. The base case right now among retail seems to be that the Fed will not act this year; the bond market does not agree with that thesis.

While I don’t have a crystal ball, the Fed has two chances to move being now and September given the inflation backdrop. The July MoM energy base effects will go away in the next CPI report, and Fed officials know this. Inflation is nowhere near the 2% mandate - and we’re going on 5+ years of more of the same. I do expect that similarly to 2000, the rate hike will act as a major denting factor in the AI trade and capital is going to stay away - especially from the data center financing side of things.

Hello Fed, anyone home?

The time to hike is this meeting or next… That’s all I have to add.

Asia Bounce?

To start the week - the tech trade is showing a little bit of life on WTI being off around 5% - that’s not really reflecting into Asia - and I would warrant caution in expecting this bounce in Asia to be like the rest. The major bounce off the trendline is going to be a major test now - especially for the KOSPI - and as I’ve noted now for almost a year - the wheels really tend to come off the bus when the Asian central banks actually have to cut instead of continuing the course with hiking as their rates blow out while their currencies get smoked.

(Continued below - Asia Bounce Odds Analysis, Macro Data Review for the Last Week, Takes two to TACO, & the Crude Roadmap - looking at the latest crude and gasoline data/technicals).

Upgrade to Ozone to continue reading…