[00:00:09] ANZ Research has revised its Federal Reserve policy call, moving the expected resumption of rate cuts from September to December 2026. This shift is primarily driven by the extended closure of the Strait of Hormuz. Brian Martin, Head of G3 Economics at ANZ, notes that while the FOMC maintains an easing bias, affordability concerns and rising energy costs are complicating the timeline.
[00:01:35] Market performance as of the Friday/Saturday close:
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US 10-Year Treasury Yield: Closed down 1.2 bps at 4.572%.
Gold: Fell 0.4% to $4,556/ounce.
US Dollar Index: Flat.
AUD: Fell 0.3% to 71.24 US cents.
NZD: Up 0.4% to 58.47 US cents.
[00:01:57] Geopolitical volatility remains high. Donald Trump stated via Truth Social that the blockade of the Strait of Hormuz will remain and there is "no rush for a deal," retracting previous comments that a deal was "largely negotiated."
2. US Inflation Dynamics
[00:02:34] Brian Martin highlights a lack of demand-side pull inflation in the US. Consumption is slowing, making it difficult for the current supply-side energy shock to translate into broader inflation.
[00:03:15] Majabin Saman, Head of FX Research, notes that higher US market rates are supporting the USD against the pound and euro, as markets pare back aggressive hiking expectations for the UK and Europe.
3. Japan Economic Data
[00:04:02] Japan’s April CPI inflation was 1.4% year-on-year, coming in weaker than expected. The Bank of Japan is likely to disregard this headline figure, as it is skewed by government energy subsidies and a policy-driven reduction in tuition fees.
4. Australian vs. New Zealand Dollar (AUD/NZD)
[00:04:34] David Croy, Senior Strategist, identifies two drivers for AUD outperformance against the NZD:
Carry Trade: Australia’s interest rates are higher than New Zealand's, with market expectations favoring the AUD cash rate 12 months out.
Energy Exposure: Australia is a net energy exporter, while New Zealand is an importer, creating divergent economic outlooks.
5. UK Economic Deep Dive
[00:05:14] ANZ Economist Bunani Madavani analyzes the UK economy, arguing for a "patient hold" from the Bank of England (BoE).
Labor Market: Wage growth is decelerating, unemployment is rising, and payrolled employees are declining—a disinflationary trend.
Inflation: Headline, core, and services inflation have moderated. While energy prices may push inflation higher in the coming months, there is currently no evidence of demand-pull inflation.
Growth: Preliminary Q1 GDP grew 0.6% QoQ, exceeding BoE projections. However, this is unlikely to sustain as energy prices weigh on growth and spare capacity remains significant.
BoE Outlook: Despite market pricing of 50 bps in hikes, ANZ maintains there is room to wait for supply shocks to recede.
6. UK Political Landscape
[00:08:07] The UK political environment is fluid following local election losses for the Labor Party. Reports indicate pressure on Prime Minister Keir Starmer, with potential leadership challenges—specifically regarding Manchester Mayor Andy Burnham. Combined with concerns about a possible expansionary fiscal shift, this uncertainty is driving UK Gilt yields higher.
Jun 2, 2026
Finding Balance: Growth, Income and Liquidity | 1 Jun 2026 | Morgan Stanley
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