Riksbank and Fed Expected to Stay on Hold, with Focus on First Warsh-Led Meeting

In Focus Today

In the US, new Fed Chair Kevin Warsh will hold his first press conference following the FOMC meeting. We expect the policy rate to remain unchanged at 3.75%, in line with market pricing. The focus will be on Warsh’s policy leanings, his assessment of the economy, and any indications of changes to Fed communication and operating practices. Even if Warsh proves relatively dovish, we still expect the distribution of rate projections to shift higher compared with March.

In Sweden, we expect the Riksbank to leave its policy rate unchanged at 1.75%, with attention focused on the updated rate path. Our base case remains a higher probability of rate hikes during the second half of 2026, with the Q4 2026 policy rate averaging 1.9%, broadly consistent with market pricing. We will closely monitor the updated projections and Governor Thedéen’s communication for signals regarding the likelihood of further tightening. We continue to expect rate increases in September and December.

On the final day of the G7 summit, leaders will focus on securing critical mineral supply chains, a key theme of France’s presidency, alongside broader efforts to address global economic imbalances. France’s push for a joint statement follows last year’s Chinese export restrictions, which exposed Western vulnerabilities. Policy options under discussion include price supports, common standards and targeted subsidies, representing early steps toward reducing dependence on China without triggering a broader trade rupture.

In the Eurozone, final HICP inflation data for May will be released. The flash estimate showed a surprisingly strong services inflation reading of 0.5% m/m seasonally adjusted. The final release will provide important details on whether this was a one-off development or a broader pickup in inflation momentum, which will be relevant for the ECB outlook.

In the UK, May CPI data will be published ahead of Thursday’s BoE meeting. Although the UK has been on a disinflationary trend since autumn, recent PMI surveys suggest that price pressures increased significantly during the spring.

Economic and Market News

What Happened Overnight

The US-Iran agreement continues to leave major questions unresolved. Some details have emerged, with President Trump stating that the framework will prevent Tehran from obtaining nuclear weapons, while US officials indicated that Iran will be permitted to resume oil exports once the agreement is formally signed. Trump has pledged to publish the text, although US officials have suggested that several key commitments remain contained in private channels, raising concerns about transparency. Israel maintains that it is not bound by the agreement, while hostilities involving Hezbollah continue. G7 partners have also highlighted verification risks. Markets have responded by reducing the oil risk premium, but the durability of the ceasefire remains uncertain.

In energy markets, Brent crude has fallen below USD 79/bbl, its lowest level in three months, as markets price in a potential reopening of the Strait of Hormuz and weaker physical demand following the preliminary US-Iran agreement. The decline has been concentrated at the front end of the curve, with one-year Brent still trading near USD 75/bbl, broadly in line with pre-war levels. Polymarket estimates continue to imply roughly a 60% probability of normal shipping traffic through the Strait by the end of July. However, low inventories and ongoing geopolitical risks may limit further downside. European natural gas prices have also weakened, with front-month TTF contracts falling around 5% on reduced supply concerns.

What Happened Yesterday

In Germany, the ZEW economic sentiment index improved sharply in June, rising to 10.5 from -10.2 in May, as investors became more optimistic about easing tensions in the Iran conflict and a moderation in inflation pressures. However, the current conditions index deteriorated further to -81.0 from -77.8, highlighting that assessments of the present economic environment remain very weak despite the improvement in expectations.

In Sweden, the NIER’s latest forecast pointed to a continued recovery in the economy, supported by improving consumer and business sentiment and rising resource utilization. Firms’ pricing plans suggest that tax cuts may dampen inflation during 2026 before price pressures gradually re-emerge, leaving inflation slightly above, but still close to, the Riksbank’s target. These survey-based indicators remain important inputs for monetary policy assessments.

Equities: Global equities were generally lower on Tuesday. US markets surrendered part of Monday’s gains, with the S&P 500 declining 0.6%, while the Stoxx 600 gained 0.3% as European markets continued to catch up. Technology stocks underperformed significantly, with AMD, Micron and Intel all falling more than 7%. Volatility in semiconductors and memory-related stocks therefore remained elevated. Nevertheless, the Philadelphia Semiconductor Index still closed near its early-June highs and remains around 15% higher over the past month.

Despite the weakness in technology shares, market action did not resemble a classic risk-off session. Cyclical sectors generally performed well, with financials, utilities, industrials and materials gaining between 0.5% and 1.0%. Asian equities also traded higher overnight, with Korean and Japanese markets advancing between 0.5% and 1.0%, while US futures pointed to a modestly firmer open.

FI and FX: Although Brent crude has slipped below USD 79/bbl, front-end yields have not followed oil lower. Yield curves experienced a modest bull-flattening move yesterday, while overnight changes in US Treasury yields and German bond futures were limited. EUR/USD traded in a narrow range around 1.1600 as investors waited for Kevin Warsh’s first public appearance as Fed Chair following tonight’s FOMC decision. We do not expect Warsh to provide firm forward guidance regarding future rate moves or to signal immediate changes to balance-sheet policy. In Sweden, we expect the Riksbank to leave rates unchanged at 1.75%, although we anticipate an upward revision to the policy-rate path. Our base case remains for increased probabilities of rate hikes during the second half of 2026, with September and December remaining our preferred timing for further tightening.