IRAN: Pezeshkian Offers Economic Reforms Amid Escalating Protest Movement
Earlier today, US President Donald Trump threatened the Iranian gov't with the prospect of military action, saying that the US would come to the rescue of protesters in the country if Iranian forces continue to fire upon them. This marks a further escalation in Trump's rhetoric regarding Iran, after saying last week that the US could participate in airstrikes alongside Israel if Tehran resumes its nuclear and ballistic missile programmes.
- Secretary of the Supreme National Security Council Ali Larijani posts on X: "With the stances taken by Israeli officials and Trump, the behind-the-scenes of the matter has become clear. We consider the positions of the protesting merchants separate from those of the destructive elements, and Trump should know that American interference in this internal issue is equivalent to chaos across the entire region and the destruction of American interests. [...]"
- These comments come after five days of protests that have spread across the country and seen at least seven demonstrators killed in clashes with security forces.
- The protests were sparked by a collapse in the rial, resulting in a spike in inflation and eroding purchasing power. However, some of the protests have broadened in scope and are more squarely aimed at the ruling regime as an entity.
- Compared to the last major protests in 2022, which resulted in widespread crackdowns, the regime has taken a (somewhat) more measured approach, with the internet remaining available and state media reporting on the demonstrations.
- Larijani's comments above, citing a difference between 'protesting merchants' (angry at the economic situation) and 'destructive elements' (those protesting the regime as a whole), is a notable shift in tone from previous protests. It remains to be seen whether the economic reform measures announced by President Masoud Pezeshkian prove sufficient to quell the demonstrations, or if this broadens into a wider anti-gov't movement.
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US: Tennessee Special Elections Adds To Democrats' Midterm Optimism
Republican Matt Van Epps won a special election in Tennessee’s 7th Congressional District. While the GOP avoided a shock loss - which appeared possible following a Democratic overperformance at off-year elections in November - the narrow margin of victory will increase Democratic optimism of flipping the House in 2026.
- Van Epps defeated Democratic state Rep. Aftyn Behn by a reported margin of 9 percentage points - considerably closer than the 20-plus percentage points margin of former Republican Rep. Mark Green and President Trump in 2024.
- Ahead of the election, we noted a Van Epps win within five percentage points would “increase GOP anxiety that the party is heading for a midterm wipeout”. See: US: Democrats Downplay Prospect Of Shock Win In Tennessee Special Election
- While that was avoided, the underperformance prompted Polymarket to upgrade the implied probability of Democrats sweeping Congress in 2026 to 37%. CNN notes, “Democrats appear to be performing better electorally than they did in 2017. And Democrats went on in 2018 to win back the US House in a “wave” election.”
- Data from NYT shows every single county in the district shifted towards Democrats, suggesting weakness across Trump’s base. The result is consistent with four other special elections this year, which Democrats have overperformed 2024 by an average of 16 points (and Kamala Harris by 18 points).
- Democratic optimism should be tempered by the imperfect predictive nature of special elections: Turnout tends to be low, putting a higher premium on voter enthusiasm, which appears to favour Democrats right now, especially with Trump off the ballot.
Figure 1: 2026 Balance of Power
Source: Polymarket
FOREX: FX OPTION EXPIRY
Of note:
EURUSD 1.87bn at 1.1600/1.1625.
USDJPY 1.27bn at 155.50.
EURUSD 2.18bn at 1.1600 (thu).
AUDUSD 1.11bn at 0.6500 (fri).
- EURUSD: 1.1600 (611mln), 1.1610 (310mln), 1.1625 (948mln).
- USDJPY: 155.00 (805mln), 155.50 (1.27bn), 156.25 (400mln).
- NZDUSD: 0.5730 (621mln).
SWITZERLAND DATA: Seasonal Adjusted CPI Data Shows Services, Domestic Above Lows
A rough seasonal adjustment of Swiss CPI data shows momentum in much eyed services and domestic categories remaining above their respective cycle lows despite some downside since the last SNB meeting in September. This supports the narrative that there is some room for further inflation downside before the SNB felt pressured to cut into negative territory.
- We calculate momentum as a 3m/3m annualized rate. For services, this stands at 0.76% (vs 1.33% before the SNB September meeting), and 0.36% for domestic inflation (vs 0.82% before the Sep meeting).
