Energy relief on the way?

Last week was volatile again. Treasury yields fell slightly, while stocks took another breather. US-Iran negotiations continued, though not without the usual quarrel here and there. Traffic through the Strait of Hormuz has increased from the lows, but the future of the waterway remains a key part of discussions as an estimated $125 billion of cargo is still trapped.

Beyond the headlines, investors continue to assess Kevin Warsh’s first press conference as Federal Reserve Chair. While there was plenty to digest, including a less-transparent approach to communication and the introduction of new task forces that could lead to significant changes in the future, the overall takeaway was distinctly hawkish. Inflation remains stubborn, and the new chair emphasized the committee’s commitment to delivering on its 2% target.

The latest dot plot also showed that nearly half of the Fed officials providing a dot still expect at least one rate hike this year. The hawkish tone may be for good reason, as indicator after indicator continues to show elevated inflation. Last week’s PCE reading, the Fed’s preferred measure, increased 4.1% year over year in May, marking its highest level in three years. One positive development was in energy markets. Oil prices declined again last week, with barrels of crude briefly falling to levels not seen since the start of the war. Unfortunately, it may still be some time before consumers feel it.

Other data last week highlighted the soft US housing market, which continues to struggle in this rate environment. May new home sales disappointed expectations as high borrowing costs weigh on potential homebuyers. The data this week will provide a timely look at the labor side of the mandate, with unemployment and nonfarm payrolls on Thursday.