INTEREST RATES STABLE, INFLATION RESILIENT, MARKET CAUTIOUS

Fed Chairman Powell sent a clear message to the markets at his final FOMC meeting: there will be no rush to cut interest rates. The policy rate was kept stable at 3.50-3.75%, in line with market expectations, but the real surprise was the 8-4 vote, with opposition unseen since 1992. Three members favored further monetary tightening, while one member supported a rate cut.

Powell's statement that "energy and geopolitical shocks have not yet peaked" significantly reduced expectations of a rate cut by the end of the year. Expectations on the polymarket that there will be no rate cuts until 2026 rose to 59%.

Cautious Markets and Resilient Bitcoin

Following the hawkish statements, Bitcoin retreated to $74,937, exhibiting the classic "sell on expectation" reflex. However, the rapid recovery following this decline highlighted the strength of the underlying structural demand in the cryptocurrency market. Bitcoin settled in the $75,900-$76,400 range during the day, closing April with an increase of approximately 14-15%, making it the strongest performing month of the year.

This price movement shows that institutional investors continue to add Bitcoin to their portfolios as a long-term store of value, despite pricing in geopolitical risks and macroeconomic uncertainties.

UAE's Departure from OPEC Formalized

A historic day unfolded in global oil markets. The United Arab Emirates' decision to leave OPEC officially came into effect on May 1st. The UAE, which has long argued that production quotas were restricting them, will now pursue an independent production strategy. While this development carries the potential for supply-side relief in the oil market, the ongoing blockade against Iran and tensions in the Strait of Hormuz continue to put upward pressure on prices.

EIA's current estimates indicate that Brent oil could rise to $115 in the second quarter. Indeed, Brent oil tested $126 earlier in the week, a level not seen since 2022.

US Economy: Growth Slowing, Labor Market Surprising

According to the latest data, the US economy grew by 2.0% year-on-year in the first quarter, falling short of expectations. March PCE inflation was 3.5% year-on-year, while core PCE was measured at 3.2%. Although both figures were in line with market expectations, they remain well above the Fed's 2% inflation target. Given that the secondary effects of rising energy prices have not yet been fully reflected in the data, increased pressure on inflation can be expected in the coming months.

On the employment front, a surprising figure emerged. Weekly jobless claims fell to 189,000, the lowest level since 1969. This situation confirms that the labor market is still quite tight and that the Fed's room for interest rate cuts is narrowing.

Oil-Related Pressure and US Bonds

Cost pressures created by rising oil prices and geopolitical uncertainties pushed the US 10-year Treasury yield to 4.4% during the day. This has the potential to negatively impact both the housing market and corporate borrowing costs.

The Geopolitical Equation and the New Fed Chairman

While Israeli-Palestinian ceasefire talks resumed in Cairo today, the situation on the Iranian front is more complex. Trump rejected Iran's proposal regarding the Strait of Hormuz, arguing that it did not include nuclear negotiations. According to Axios, Trump instructed his aides to expand the blockade against Iran. How Iran responds to this decision is the most critical factor determining the short-term trajectory of oil prices.

Against the backdrop of these geopolitical developments, the Senate is expected to hold a general assembly vote this week on Kevin Warsh's nomination for Fed Chairman. Markets are closely watching whether there will be a loosening of monetary policy with the new chairman, given expectations that Warsh is more inclined towards interest rate cuts.

Conclusion:

May will be a critical turning point for investors. The impact of the UAE's departure from OPEC on global oil supply, uncertainties in the Iran negotiations, Warsh's appointment as Fed chairman, the markup process of the CLARITY Act, and potential profit-taking in the cryptocurrency market following April's strong performance are the main factors that will determine the direction of the markets.

In particular, if oil prices fall below $90 in the fourth quarter, in line with the EIA's base scenario, the Fed's room for maneuver regarding interest rate cuts may widen. However, the realization of this optimistic scenario first requires a diplomatic solution to the Iran crisis.

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