Daily Macro US
Fed Funds Rate
3.50–3.75%
Hold confirmed 99.9%
CPI YoY (Apr)
3.8%
+0.6% MoM
Core CPI (Apr)
2.8%
Unchanged
WTI Oil
$92.36
+$2 on deal stall
S&P 500
7,473
+0.37%
PMI Composite
55.3
Expansion
First trading day back after Memorial Day. The Iran deal narrative took a material hit over the long weekend: the US conducted 'self-defense strikes' on Iranian missile launch sites and boats around the Strait of Hormuz, Austria's intelligence service published a report claiming Iran is actively pursuing a nuclear weapons program, and Rubio confirmed that nuclear language and sanctions wording remain the main sticking points in negotiations. The deal is not dead — Qatari-mediated talks in Doha continued even as the strikes unfolded — but it is clearly months, not days, away. WTI bounced to $92.36 from Monday's ceasefire-driven dip to $90, as markets partially repriced deal uncertainty. Equity markets shook it off: S&P 500 up 0.37% to 7,473, its eighth consecutive weekly gain. The macro fundamentals remain unchanged and supportive of all existing theses. April CPI came in at 3.8% YoY (core 2.8%), well on track for a full-year 2026 average comfortably below 4.5%. PMI at 55.3, Q1 GDP at +2.0% annualized, and Fed confirming a hold at 99.9% probability at June FOMC all invalidate both the recession scenario and the emergency-cut narrative. The one development that matters most this week is whether the Iran negotiations produce any signed document — absent that, oil stays at $90-95 and our disinflation thesis holds intact.
Today's Market Moves
Inflation 2026 > 4.5%
58%→60%+2pp
WTI bounce to $92 + deal stall — YES slightly repriced upward
US Recession 2026
19%→21%+2pp
Geopolitical risk repricing: US strikes on Iran → slight uptick despite strong PMI/GDP
Fed Rate < 3.0% before 2027
12%→10%-2pp
CME FedWatch 99.9% hold — market pricing out last vestiges of cut risk
Unemployment >= 5.0%
34%→33%-1pp
Stable — low-hire/low-fire equilibrium persists at 4.3–4.5%
CPI May YoY >= 4.4%
18%→18%0pp
Unchanged — May CPI (June 10) is the next binary catalyst
Screening Table
| # | Market | Expiry | Market Price | Fair Value | Gap (pp) | Direction | Volume | Confidence |
|---|---|---|---|---|---|---|---|---|
| 1 | Inflation 2026 > 4.5% | Dec 2026 | 60% | 28% | -32pp | SELL YES | $800K+ | 9/10 |
| 2 | CPI May MoM = 0.6% | Jun 2026 | 40% | 18% | -22pp | SELL YES | $17K | 8/10 |
| 3 | Unemployment >= 5.0% | Dec 2026 | 33% | 15% | -18pp | SELL YES | $220K | 8/10 |
| 4 | CPI May YoY = 4.3% | Jun 2026 | 20% | 5% | -15pp | SELL YES | $164K | 8/10 |
| 5 | CPI May YoY >= 4.4% | Jun 2026 | 18% | 4% | -14pp | SELL YES | $164K | 8/10 |
| 6 | US Recession 2026 | Dec 2026 | 21% | 7% | -14pp | SELL YES | $890K | 9/10 |
| 7 | Fed Rate < 3.25% before 2027 | Dec 2026 | 16% | 4% | -12pp | SELL YES | $1M+ | 9/10 |
| 8 | Unemployment >= 6.0% | Dec 2026 | 16% | 4% | -12pp | SELL YES | $400K | 8/10 |
| 9 | May Unemployment = 4.3% | Jun 2026 | 34% | 25% | -9pp | NEUTRAL | $35K | 5/10 |
| 10 | Fed Rate < 3.0% before 2027 | Dec 2026 | 10% | 4% | -6pp | NEUTRAL | $1M+ | 9/10 |
Market vs Fundamentals
Market Price (red) vs Estimated Fair Value (green) — %
Top 5 Opportunities
1
Inflation 2026 > 4.5% — NO
↓ SELL YES-32pp
Market price
60%
Fair value
28%
Gap: -32pp
The deal stall is the top narrative today, but it changes nothing structurally for annual inflation. Even at $92 WTI for the rest of 2026, the math doesn't support a 2026 annual CPI average above 4.5%. April YoY was 3.8%, core was 2.8%. Getting from 3.8% to >4.5% requires either a dramatic H2 energy re-acceleration (WTI > $140) or core CPI breaking out well above 3%. Neither is on the table. The 60% YES price reflects trauma from the April shock, not a probability-weighted scenario analysis. Our estimate: 28% probability of >4.5%, unchanged from yesterday. Gap widened 2pp as WTI recovered — our edge is now 32pp, the widest in the portfolio.
▵ Bull case
- WTI $92 and deal stall → energy contribution stays positive through H2
- Austria nuclear report: deal may collapse entirely → WTI spikes
- Tariffs: goods deflation not materializing as expected
- Market: 60% reflects sustained inflation risk premium
▿ Bear case
- Annual avg >4.5% requires WTI >> $100 all year — deal will eventually happen
- Core CPI 2.8%: shelter-driven, not accelerating to 4.5%-territory
- Q1 GDP 2.0%: growth without wage-price spiral
- Fed on hold at 3.50-3.75%: restrictive enough to cap core inflation
- May CPI expected 3.5-3.8% — well below 4.5% threshold
2
CPI May MoM = 0.6% — NO
↓ SELL YES-22pp
Market price
40%
Fair value
18%
Gap: -22pp
April MoM was +0.6%, driven by the WTI spike from $95 to $126. In May, WTI averaged ~$100-105 (high first three weeks, then dipping to $90 last week after ceasefire). The energy contribution in May is materially lower than April — though not as dramatically negative as we initially hoped before the deal stalled. Cleveland Fed nowcasting and Wall Street consensus point to May MoM in the 0.2-0.4% range. The probability of an exact 0.6% repeat is at most 18%. At 40% market, this is significantly mispriced. The only risk: liquidity at $17K severely caps position size.
▵ Bull case
- Services CPI persistent: shelter + transportation sticky
- May WTI averaged ~$100-105 — energy not as deflationary as feared
- April print set a momentum-anchoring bias
▿ Bear case
- WTI dropped sharply in last week of May — energy drag on MoM
- Cleveland Fed nowcast: May MoM 0.2-0.4% range
- Market at 40% implies same energy shock as April — manifestly wrong
- June 10 resolution: short time horizon
3
Unemployment >= 5.0% — NO
↓ SELL YES-18pp
Market price
33%
Fair value
15%
Gap: -18pp
US unemployment at 4.3-4.5% in a low-hire, low-fire equilibrium. Reaching 5.0% by year-end requires net job losses of ~800K-1.2M — equivalent to a recession-level shock that is flatly inconsistent with PMI 55.3 and GDP +2.0%. The Philadelphia Fed SPF caps unemployment expectations at 4.5% for 2026. The market at 33% is pricing a scenario that would require an economic collapse not currently visible in any leading indicator. Our prior that the US does not enter recession this year (93% probability) directly implies <7% chance of unemployment reaching 5%+ — let alone 33%.
▵ Bull case
- Iran escalation → supply shock → hiring freeze in energy sector
- Tariff uncertainty creates corporate caution on headcount
- 33% market price: wisdom of crowds sees real tail risk
▿ Bear case
- PMI 55.3: expansion, consistent with continued hiring
- Low-fire environment: layoffs historically low even as hiring slows
- SPF consensus: peak 4.5% for 2026
- Q1 GDP +2.0%: not recessionary
- 4.3-4.5% for 3+ months: strong inertia
4
CPI May YoY = 4.3% — NO
↓ SELL YES-15pp
Market price
20%
Fair value
5%
Gap: -15pp
April CPI YoY was 3.8%. For May to print exactly 4.3% would require a +0.5pp jump in a single month — historically unusual outside a major energy shock. WTI in May averaged ~$100-105 vs April's $115+ average. The energy base effect actually turns favorable in May 2025 vs April 2025. Our point estimate for May YoY: 3.5-3.8%. The 4.3% outcome is a tail scenario requiring an unexpected services spike or energy component anomaly. At 20%, the market is assigning 4× our estimate. June 10 resolution makes this a near-term binary with clear asymmetry.
▵ Bull case
- Services CPI persistent — shelter and transportation unlikely to deflate
- WTI averaged $100+ in May — energy component still positive YoY vs May 2025
▿ Bear case
- April 3.8% is the base — jumping to 4.3% in one month requires +0.5pp shock
- WTI May avg ~$100-105 vs April $115+ → energy contribution moderates
- Favorable base effect: May 2025 had WTI near $60-65
- Core at 2.8%: no acceleration signal
5
US Recession 2026 — NO
↓ SELL YES-14pp
Market price
21%
Fair value
7%
Gap: -14pp
Market ticked up 2pp today (19% → 21%) as US strikes on Iranian military assets raised geopolitical uncertainty. But the strikes do not change the economic fundamentals: PMI 55.3, GDP +2.0%, S&P 500 at 7,473 (+8 consecutive weekly gains), unemployment 4.3%. A recession requires 2+ quarters of negative GDP — the first would have to start now, in an economy posting PMI readings well into expansion territory. Our fair value of 7% reflects the NY Fed DSGE model's sub-10% recession probability and the incompatibility of 55+ PMI readings with recessionary dynamics. The market at 21% is mispriced by 14pp even after today's uptick.
▵ Bull case
- US strikes on Iran → geopolitical escalation → supply shock risk
- Tariff uncertainty creates business investment caution
- Market: 21% — marginal uptick signals some trader conviction
▿ Bear case
- PMI 55.3: 100% correlation with non-recession historically
- Q1 GDP +2.0%: expansion continues
- S&P 500 at 7,473, 8 consecutive weekly gains: financial conditions not tightening
- NY Fed DSGE: sub-10% recession probability
- Low-fire labor market: no mass layoff signal