SECURITY: Israel's Operation Against Iran Could Last Two-Three Weeks - Ynet

• RES 4: 6080.75 High Feb 26    
• RES 3: 6057.00 High Mar 3  
• RES 2: 6000.00 Round number resistance      
• RES 1: 5927.00 High May 13                                  
• PRICE: 5918.50 @ 14:31 BST May 14 
• SUP 1: 5648.28 50-day EMA                        
• SUP 2: 5455.50 Low Apr 30 
• SUP 3: 5355.25 Low Apr 24
• SUP 4: 5127.25 Low Apr 21 and a key support 

A bullish trend condition in S&P E-Minis remains intact and this week’s appreciation reinforces current conditions. The contract has cleared an important resistance at 5837.25, the Mar 25 high and a bull trigger. This strengthens the bullish theme, paving the way for a continuation near-term. Sights are on the 6000.00 handle next. Initial firm support to watch lies at 5648.28, the 50-day EMA.

Fed Vice Chair Jefferson (permanent FOMC voter) provides a fairly even-handed outlook for the economy in a speech Tuesday (link), with his views appearing to correspond to those of the center of the Committee. He doesn't exactly repeat the language he's employed in recent months of being in "no need to be in a hurry" to cut rates, but the overall tone in his latest speech is consistent with a wait-and-see attitude on hard data and open-mindedness on whether tariffs will be persistently inflationary. Overall, he thinks uncertainty is likely to prevail for "some time".

• He continues describes the current level of rates as "moderately restrictive" (Chair Powell reiterated last week that policy was modestly or moderately restrictive, with Gov Kugler Monday also using the term "restrictive"), and repeats what colleagues have described as policy being "well positioned" to respond to developments: "Over the past several meetings, the rate has been held at what I view as a moderately restrictive level. I view the current stance of policy as well positioned to respond to developments that may arise."
• Pointing to "increased risks to both sides of our mandate", Jefferson says "I remain focused on the aggregate effect from the totality of different government policy changes, including trade, immigration, regulatory, and fiscal policies, as well as their net effects on the economy. This net effect will likely remain uncertain for some time."
• He's lowered his growth expectations but there's not much sign that this week's US-China tariff de-escalation has impacted his view significantly, pointing to business uncertainty as portrayed in the latest Beige Book, and noting that he would be "following developments carefully".  On growth and the labor market, "I have adjusted down my expectations for economic growth this year, but I see the U.S. economy as continuing to expand...labor market [] conditions continue to be solid...Looking ahead, I am watching for signs that the labor market could cool as tariff increases begin to weigh on economic activity."
• He is paying close attention to hard data to corroborate survey weakness though: "various measures of consumer and business sentiment have declined sharply this year, and I will be watching very carefully for signs of weakening economic activity in hard data" (implying that he'll be sensitive to weakness in deciding whether and when it's time to cut rates).
• On inflation, Jefferson notes data showing continued progress toward 2% though appears "wait-and-see" on tariff-associated inflation persistence, while also noting that longer-run expectations remain anchored: "recent data are consistent with further progress toward our 2 percent inflation target; however, that goal has not yet been reached....If the increases in tariffs announced so far are sustained, they are likely to interrupt progress on disinflation and generate at least a temporary rise in inflation. Whether tariffs create persistent upward pressure on inflation will depend on how trade policy is implemented, the pass-through to consumer prices, the reaction of supply chains, and the performance of the economy. Short-term inflation expectations have increased in both survey- and market-based measures, but I think it is notable that most measures of longer-run inflation expectations have been largely stable."

Weakness in broader core global FI markets is enough to drive a clean break of next support in gilt futures, in the form of the April 15 low (91.43), with the move extending to 91.11.

• Next support located at the 76.4% retracement of the April 9-May 2 rally (90.92)
• Yields now 3-4bp higher across the curve, with 2s back above 4.00% as bears look to force a more meaningful break above that level.
• Comments from President Trump re: the potential for news on the Russia-Ukraine conflict at some point today may have factored into the weakness, with wider macro and UK news flow remaining limited.
• Hawkish flow in GBP STIRs seen alongside the move, with December MPC pricing moving to the most hawkish levels seen since 11 April, showing 44bp of cuts through year-end. 1bp of cuts priced for June, 18bp through August, 24bp through September and 38bp through November, contracts 0.5-3.5bp more hawkish on the day.
• SONIA futures also register lowest levels seen in May, last little changed to -7.5.
• This helps the early gilt curve steepening unwind, with more of a parallel shift now seen.