highlights

Iran, FOMC, BOJ

The market is taking the Middle East in stride for a change.

June 16, 2025

I am not sure what these are for but I would like some.

To put on the bar near spilled drinks?

$3.20

Current views

Flat

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Before we get started, please complete this super short 4-question survey on the FOMC. It will take you 16 seconds total.

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Iran, so far away

They say that finance has no memory but it does feel like the markets are starting to remember that Middle East dustups have no impact on US equity values, other than for one or two days. It almost makes me a bit nervous how complacent we are, but unless one of the following happens, the focus will soon turn to the Fed:

Iran attacks energy infrastructure in Qatar, Bahrain, or Saudi Arabia.
Iran attacks US military installations or personnel.
Israel attacks Kharg Island, which handles 90% of Iranian oil exports.
Iran attempts to shut the Strait of Hormuz.

This article is a good explainer of worst case scenarios.

For now, the blasé response from markets makes sense, even as we expect more Israeli strikes daily. For real-time assessments, see here:

https://polymarket.com/event/israel-strike-on-iran-on?tid=1750022887865

https://polymarket.com/event/israel-x-iran-ceasefire-before-july

As mentioned, we get FOMC this week. Views are all over the place as a decent cohort expects the Dots to move from two cuts to one. I strongly disagree with this as I think the Fed is dying to cut but couldn’t before and probably can now use May CPI and expected soft Core PCE data as cover to move closer to, not further from cuts. July is 18% and September is at 75% right now and if there is a surprise, I think it will be that this FOMC meeting is so dovish that it brings July into play. Receiving July looks like excellent risk/reward to me into the meeting as worst case you go from 18% to 10% and best case you go from 18% to 65%/70% one week from now.

This week features a panoply of economic and central bank events as we will get six major central bank releases and a flurry of mostly-second-tier data. Tonight we will get the Bank of Japan decision. Nobody is expecting anything on rates from the BOJ, but the question of bond purchases will come up and there is a wide range of expectations for that.

Current Plan: Reducing purchases by ¥400 billion per quarter since August 2023. Targeting a halving of bond purchases by Q1 2026 (from ~¥6 trillion/month pre-QT).

Options Being Considered:

Option A: Slow the tapering to ¥200 billion per quarter – the most likely scenario based on insider sources and economist surveys. Rationale: Calms the bond market amid recent yield volatility.
Option B: Maintain the current pace of ¥400 billion per quarter. Risk: May destabilize long-dated JGBs further.
Option C: Moderate reduction of ¥300 billion per quarter – a middle ground.

Market Expectations from Bloomberg Survey:

47% of analysts expect a ¥200 billion reduction per quarter.
29% expect ¥300 billion.
24% expect no change (~¥400 billion continues).

USDJPY, like US bond yields, has slipped into a bit of a random walk of late and I am not sure this BOJ meeting will change that. But those are the things to watch for, along with verbiage on future hikes.

Final Thoughts

Take a look at charts of SBET and GME to see how the market is finally realizing that these unprofitable businesses issuing debt to buy bitcoin are stupidly overpriced. Buying one bitcoin for $200,000 is not a good deal and when you buy these companies at >2X NAV, that’s what you’re doing.
The calendar appears one page before the non-sequitur. I would also like to note that the G7 meeting is happening this week, and there is some probability that some sort of outline of a plan for a few US trade agreements could come out of that. Watch for headlines on Japan, especially, as that deal seems close to done. Will markets care? I doubt it, but it could add to the general bulletproof feeling in stocks.
AUD longs caught a break overnight as there is a giant AUD-positive M&A in the works, and the China data came in mostly on the positive side.
I am working on a thesis about how the Genius Act will lead to a flood of stablecoins from banks and companies like WMT and AMZN and this will probably lead to a huge drop in V and MC earnings and make CRCL a terrible investment with no moat in a completely commoditized space. If you have any opinions that might help educate me, or help me avoid saying something wrong/stupid… I am 100% ears.
I made an error in Friday’s am/FX as I used the wrong CPI for Sweden when calculating the real policy rate. Here are the corrected graphics.