A memorandum signed by the US, Pakistan and Iran has lifted sentiment sharply this morning. Oil is down around 4 percent, equities are higher and Bitcoin has recovered to 65,700 after making new lows under 60,000 last week. The deal extends the framework by 60 days and leaves key questions unanswered, but markets are treating it as a meaningful step toward normalisation. Warsh’s first Fed meeting on Wednesday and a pivotal UK by-election in Wakefield on Thursday round out a busy week of potential market catalysts.
Geopolitics: Iran Memorandum Signed, Caution Warranted
The big news overnight is that a memorandum has been signed by the Americans, the Pakistanis and the Iranians. Markets have reacted positively: oil is down meaningfully, equities are higher and risk sentiment has improved. However, Russell is not yet calling this a clean resolution. The deal looks like progress but leaves the core issues unresolved. JD Vance stated firmly that Iran will never have a nuclear weapon, yet the status of existing enriched uranium remains undetermined. The framework has simply been extended by another 60 days.
Iran’s statement noted that how things develop will depend on how the Americans conduct themselves going forward. Lebanon is reportedly part of the deal but no ceasefire with Hezbollah has materialised. The Hormuz Strait naval blockade is expected to be lifted as part of the agreement, which is driving the bulk of the oil price reaction this morning. Russell’s base case is cautious: this is positive news but not a definitive resolution, and the geopolitical tail risk remains live.
Macro: Quiet Data Week, but Wednesday Is Key
Last week was relatively quiet on the economic data front. CPI came in exactly on expectations at 4.2 percent, with core ex-food and energy also bang in line at 2.9 percent. PPI was mixed: the headline came in a touch hot at 6.5 percent versus 6.4 expected, but the core ex-food and energy component was a meaningful miss at 4.9 versus 5.4 expected. Michigan consumer sentiment was a beat at 48.9 versus 46 expected. Importantly, University of Michigan inflation expectations came down: one-year expectations fell from 4.8 to 4.6, and the five-year measure dropped more meaningfully from 3.9 to 3.4. Both are still well above the Fed’s target but the direction is encouraging.
This week brings industrial production today, retail sales on Wednesday, and crucially, Warsh’s first Federal Reserve meeting on Wednesday. A rate move is essentially off the table, with Fed fund futures pricing 96.6 percent probability of no change and just 3.4 percent probability of a 25 basis point cut. Zero probability of a hike. The market focus will be on Warsh’s press conference tone and whether he signals any shift in the Fed’s reaction function given the improved geopolitical picture and the early signs of softening inflation expectations.
| Indicator | Actual | Expected | Verdict |
|---|---|---|---|
| CPI (headline) | 4.2% | 4.2% | In line |
| CPI ex-food and energy | 2.9% | 2.9% | In line |
| PPI (headline) | 6.5% | 6.4% | Slight beat |
| PPI ex-food and energy | 4.9% | 5.4% | Meaningful miss |
| Michigan sentiment | 48.9 | 46.0 | Beat |
| 1yr inflation expectations | 4.6% | 4.8% prev. | Improving |
| 5yr inflation expectations | 3.4% | 3.9% prev. | Meaningful improvement |
UK Political Risk: Wakefield By-Election on Thursday
The UK political situation remains a significant market watch point. The Wakefield by-election on Thursday looks set to be won by Andy Burnham, who is leading in polls by 8 to 12 points over Reform. A Burnham victory would trigger a Labour leadership election, which Burnham is expected to contest and likely win. Russell is clear on the market implications: the markets will not like a Burnham premiership. Burnham is described as firmly left-wing and markets will immediately start asking how his economic policies are to be funded, which points to materially higher gilt yields and pressure on Sterling.
Asked about the prospect of Ed Miliband as Chancellor under Burnham, Russell gave a measured view. Miliband is not regarded as a sharp economic operator but would not in isolation be a major market negative. The problem is the overall Burnham package. Sterling has been trading well recently but a Burnham leadership victory would be expected to reverse that.
Bitcoin: New Lows Last Week, Now Recovering
Bitcoin made new lows last week, trading convincingly below 60,000 into the low 59,000s. The expected wave of forced selling from gamma around the 60,000 put strike did not materialise in the way many anticipated. Significant spot buying came in and absorbed the selling, and the break below 60,000 was relatively short-lived and orderly. This morning, following the Iran memorandum, Bitcoin has recovered to 65,700. The recovery is notable but Russell maintains a medium-term cautious stance, noting that the technical picture has been bearish since the 18th of May.
For short-term technicals to turn more constructive, Bitcoin needs to reclaim and hold the 67,000 to 68,000 zone. Above that, the first meaningful resistance is at 73,000 to 74,000, with the next major level at 78,000 to 80,000. Key support remains at 60,000. ETF outflows last week were 300 million dollars, meaningfully lower than the outflow figures seen in prior weeks, which is a tentative positive signal. Overall, Bitcoin has plenty of work to do before the technical picture turns genuinely bullish, even with today’s improved macro backdrop.
The significant spot buying that came in around 60,000 was impressive. But Bitcoin has a lot of work to do technically before we can call this market meaningfully bullish.
BTC Volatility: Implied Now Through Realised
The options market is showing an interesting shift this week. Implied volatility has come in significantly and is now trading through realised volatility for the first time in several weeks. Implied is at 37.63 while realised is running at approximately 38.5, meaning the market is no longer paying a premium for forward uncertainty over recent actual moves. DVOL has also fallen to around 40. Despite this compression, the put to call skew remains pronounced: five delta puts are trading above 60 implied volatility while five delta calls are essentially flat at 36, a 24 point premium of puts over calls.
The Ethena USDe ecosystem remains stable. The yield on USDe is unchanged at 3.75 percent and total value locked on the platform has climbed back to 4.5 billion dollars, recovering from recent lows. This is a modest positive signal for the broader crypto funding and basis trade environment that underpins several of Hilbert’s core strategies.
CLARITY Act: Prediction Markets Tick Up Slightly
CLARITY Act prediction market odds have nudged up to 52 to 53 percent this week, a mild improvement on the prior week but still far from a comfortable majority. The July 4th deadline set by President Trump remains the target. As noted previously, missing this legislative window is likely to push any meaningful crypto framework out to approximately 2030. The slight tick up in odds may reflect improving overall market sentiment following the Iran news rather than any specific legislative progress, and the path to passage through a busy Congressional calendar remains uncertain.
