Monday, May 25, is a thin-trade session — US markets are closed for Memorial Day, the UK observes Spring Bank Holiday, and Europe marks Whit Monday. Despite the closures, Asian and European equity futures point higher on the back of weekend optimism over a US-Iran agreement. The Nikkei 225 rallied to a fresh all-time high above 65,000, Euro Stoxx 50 futures are up 1.0%, and US futures edged higher at the reopen.

The Big Story: A US-Iran Deal Nears

President Trump announced over the weekend that a deal with Iran has "largely been negotiated," with 95% of the terms agreed. The emerging agreement reportedly includes a 60-day ceasefire with an option to extend, the reopening of the Strait of Hormuz, and limits on Iran's enriched uranium stockpile. However, Trump stressed that the naval blockade will remain in full force until a deal is formally signed, and that negotiators should "not rush." He characterized the emerging deal as "the exact opposite" of the Obama-era JCPOA.

Secretary of State Marco Rubio said there could be "some good news" on the Strait of Hormuz in the coming hours but cautioned that a final resolution is not yet in hand. On the Iranian side, President Pezeshkian said the negotiating team would not compromise on the country's honor, and Iranian sources emphasized that "there is no final deal yet."

The impact on crude has been dramatic: WTI crude fell from over $107 at the start of last week to around $96.60 a barrel — a drop of more than 10%.

The Fed: A New Chair and a Hawkish Flip

Two major Fed developments emerged late last week:

Kevin Warsh was sworn in as the 17th Fed Chair. In his first public remarks, he said "we are not naive about the challenges," adding that "inflation can be lower and growth strong." He pledged to lead a "reform-oriented Fed" that will learn from past mistakes.

Christopher Waller made a sharp pivot from dove to hawk. Waller, who began the year as one of the Fed's most dovish members, argued that it is "crazy" to keep discussing rate cuts given the hot April CPI, PPI, and employment data. His comments pushed short-end Treasury yields higher. Markets are now pricing in a 25bps rate hike by year-end — a complete reversal from the rate-cut narrative that dominated earlier this year.

In a counterpoint, White House NEC Director Kevin Hassett suggested that ending the Iran war "may create room for a Fed rate cut," premised on falling energy prices.

ECB Minutes Due Thursday: June Hike in Play?

The European Central Bank will release its April meeting minutes on Thursday. President Christine Lagarde has already revealed that a rate hike was debated at the meeting, though the final decision to hold was unanimous. ECB sources point to a June hike as increasingly likely, with officials Kocher and Stournaras signaling that the bank may be forced to tighten next month amid persistent inflation pressures driven by energy costs and Middle East supply disruptions.

The Week Ahead

Key data and events this week:

  • Wednesday: RBNZ policy decision (expected to hold at 2.25%), Australia CPI (April)
  • Thursday: ECB minutes, US Q1 GDP revision, US PCE inflation data for April — the Fed's preferred inflation gauge
  • Friday: Tokyo CPI (May), German unemployment, French/Italian/Spanish HICP readings

FX & Rates Roundup: The dollar eased on the risk-on mood (DXY ~98.99). EUR/USD rose to 1.1646, supported by a weaker dollar and hawkish ECB hints. The shekel traded around 2.8876 per dollar, relatively stable amid hopes for regional de-escalation. The US 10-year yield fell to 4.558%, down 6.5 bps on the week.

Gold held near $4,523, while Bitcoin traded around $77,517, modestly higher on the week.

Bottom Line

Markets are navigating two opposing forces: optimism over a potential US-Iran deal that would lower energy costs and reopen Hormuz, and a Fed that is actively pushing back against rate-cut expectations. The ECB appears ready to join the tightening camp. Thursday's PCE print will be the next major test for the narrative.