No Question of Stagflation

Daily Updates:

• While a number of Fed officials have pushed the expected date of the next Fed rate cut to beyond the summer due to tariff uncertainty, Neel Kashkari has presented a slightly more hawkish outlook on monetary policy. The Minneapolis Fed President said “anything is possible” and asked will the picture “be clear enough by September? I am not sure right now. We will have to see what the data says, but also how the negotiations are going”. 
• According to Kashkari, “there’s no question that the shock of tariffs are stagflationary, the question is going to be ultimately how high (the tariffs) settle at, and how long a period is this uncertain environment and the tariffs are going to last”.
• Kashkari added to the wait-and-see view for which other Fed speakers last week have advocated, stating that the administration’s whipsawing tariff policy “is potentially weighing on economic activity and creating challenges for us because we are not sure where things are going to settle and, therefore, where we should go with monetary policy”. 

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• We need not look any further for evidence of that tariff whipsaw than last Friday, when President Trump threatened to impose a new 50% tariff on imported goods from the European Union, due to US discussions with the EU “going nowhere”. Trump added that “he’s not looking for a deal” with the EU, and also warned of laying down 25% levies on Apple and Samsung for any products manufactured outside of the US. 

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• Between Friday and Sunday however, after a phone call with the European Commission President Ursula von der Leyen, Trump has now agreed to extend that deadline of potential 50% tariffs on imports from the European Union until July 9.
• Speaking to reporters yesterday, Trump said “we had a very nice call and I agreed to move it” while Von der Leyen posted on X that “Europe is ready to advance talks swiftly and decisively”, but the two sides need “time until July 9”. 
• SPX futures rose on the announcement between both sides, with S&P 500 contracts up 1.20%, while the US dollar fell even further, down 0.4% today, and on track to a level it last reached in July 2023. US treasuries and equities markets are closed however for Memorial Day in the US. 
• Japanese equities, measured by the Nikkei 225, are up 1% today, after President Trump announced a deal between Nippon Steel Corp. (Japan’s largest steelmaker) and US Steel Corp, and after Japan’s chief trade negotiator, Ryosei Akazawa said there are plans to resolve tariff talks in time for a June meeting between Trump and Japan’s Prime Minister Shigeru Ishiba. 

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• After dropping to $107K from its ATH following Trump’s abrupt willingness to hike tariffs on the EU, BTC has since clawed back some of those losses, trading today at $109.9K. 
• Derivatives markets maintain their exuberance – volatility smile skews are tilted towards OTM call options for short-tenors by as much as 6%. ETH options also exhibit a similar bullish outlook, though by a smaller 3% skew towards calls for 7-day options. 
• Both asset’s futures-implied yields have steepened over the past 24 hours, as the 1–week ETH tenor has surged from 1.77% to 5.95%. 
• Short-dated ETH options trade at an implied volatility premium, with the term structure remaining inverted by 4 points between the 7-day and 180-day tenors.

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• The Pakistan Crypto Council has allocated 2,000 megawatts (MW) of electricity to support Bitcoin mining and AI data centres as part of a first phase in the nation’s push towards digital assets. According to the finance ministry, the initiative will help monetise surplus energy and create high-tech jobs, the finance ministry said in a statement.
  

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