The Relief Rally Has It Backwards.

Executive Summary

Markets spent the past week treating two developments as unambiguously good news: the interim ceasefire between the United States and Iran, which removes the energy shock at its source, and a Federal Reserve that left its policy rate unchanged. Both readings are backwards. The ceasefire removes the cause of the inflation, not the inflation itself, which has already been incurred at the producer level and has not yet reached the consumer. The Fed did not pause in a dovish direction. In the space of three months its own projections moved from a cut in 2026 to a hike, the median dot rising from 3.4 per cent in March to 3.8 per cent in June, while it lifted its 2026 core inflation forecast to 3.3 per cent from 2.7 per cent. Headline consumer inflation already runs at 4.2 per cent and producer prices at 6.5 per cent, with core producer prices at 5.1 per cent sitting fully 2.2 percentage points above core consumer prices at 2.9 per cent. The S&P 500 fell 1.21 per cent on the decision to close at 7,420.10.

We expect inflation to stay elevated through the coming months as the producer-level shock passes through to consumers; we expect the Fed to follow the European Central Bank and the Bank of Japan into an actual hike before it eases; and we therefore continue to favour gold and selective non-US equity over US duration and the crowded US tape.

Since last month

The 14 May note argued that the energy shock would feed through into both consumer and producer prices, that US fixed-income duration was unattractive, and that US equity volatility would rise. The first two have played out. Headline consumer inflation has climbed from 3.8 to 4.2 per cent since that note, headline producer inflation has accelerated to 6.5 per cent, and the long end has sold off as the Fed has turned. The volatility call has been right only in bursts, with the VIX spiking toward the low twenties around this week's meeting before settling near 17. The call that has not yet worked is gold, which has fallen from roughly 4,700 dollars in mid-May to about 4,275 today. We read that as a liquidity-driven setback rather than a break in the thesis, for the reasons set out in the positioning section below.

1. The pivot, not the pause, was the event

The Federal Open Market Committee held the target range at 3.50 to 3.75 per cent on a unanimous vote at Kevin Warsh's first meeting as Chair. The hold was the least informative part of the decision. The Summary of Economic Projections did the work. The median projection for the federal funds rate at the end of 2026 rose to 3.8 per cent, up from 3.4 per cent in March; since the current range midpoint is 3.625 per cent, the committee has moved in a single quarter from projecting a cut this year to projecting a hike, with nine of eighteen participants now penciling in at least one increase. The same projections lifted the 2026 core inflation forecast to 3.3 per cent from 2.7 per cent. Warsh shortened the statement, removed the language that had signalled an easing bias, declined to submit his own dot, and announced task forces to overhaul the Fed's operations. The market read the signal even though the rate did not move: the S&P 500 fell 1.21 per cent, the two-year Treasury yield rose roughly eleven basis points to about 4.15 per cent, and gold fell close to 2 per cent. A hold dressed as patience was understood, correctly, as the opening of a hiking path.

2. The missing input: the inflation already in the pipeline

The consensus has taken comfort from a contained core consumer print. That comfort is misplaced, and the reason is visible in two public releases that almost no one reads side by side.

Sources: US Bureau of Labor Statistics, CPI and PPI releases for May 2026 (10 and 11 June 2026).

Headline consumer inflation reached 4.2 per cent in May, its highest since April 2023, yet core consumer inflation held at 2.9 per cent and core consumer goods prices actually fell 0.1 per cent on the month. Read alone, that looks like a shock confined to energy and already fading. Read against the producer data, it looks like the opposite. Core producer prices, stripping out food, energy and trade services, rose 5.1 per cent over the year and 0.8 per cent in the month, the largest monthly gain since March 2022, while final demand goods prices posted their biggest single-month rise since the series began in 2009. The result is a gap of 2.2 percentage points between core producer inflation at 5.1 per cent and core consumer inflation at 2.9 per cent. That gap is cost producers have already absorbed and have not yet passed to consumers. Producer prices have historically led consumer prices by one to two quarters, and margins are not infinitely elastic. In our view the pass-through is more likely than not to reach core consumer inflation over the coming months, which is why we treat the current 2.9 per cent core reading as the calm before the transmission rather than evidence the shock has passed. The Fed's own projections corroborate this, since it raised its 2026 core forecast in the same week oil prices fell, and the Bank of Japan, lifting its own rate this week, warned explicitly that the rise in crude had been passing into business-to-business prices at a fast pace with scope to spread to consumer prices across a wide range of items. The cause is being removed. The charge is already in the system.

3. The ceasefire is real, the normalisation is slow

The de-escalation is genuine and it matters. The United States and Iran reached an interim memorandum of understanding, with a formal signing expected in Switzerland and the Strait of Hormuz set to reopen, and Brent has drifted back toward 80 dollars from levels above 100 during the shock. We treat this as the single most important positive development of the year, because it removes the source of the supply disruption. The qualification, and it is the one the relief rally is ignoring, is that a memorandum of understanding is not a settlement. It has not been fully signed, the reopening of Hormuz has not been confirmed, the US President has described it as provisional and reversible, and prewar shipping is expected to be restored over weeks rather than instantly. More important for inflation, the energy already consumed at elevated prices is in the data: energy consumer prices are up 23.5 per cent over the year and gasoline 40.5 per cent. Even a clean and durable peace leaves a full year of energy inflation embedded in the base and the producer pass-through still pending. The clearest evidence that this is not a passing scare comes from the central banks themselves. Within eight days the European Central Bank raised its deposit rate to 2.25 per cent, its first hike since 2023 and the first by a major central bank in response to this shock; the Bank of Japan raised its policy rate to 1.0 per cent, its highest since 1995; and the Fed turned to a hiking bias. Three of the world's largest central banks are tightening into a supply shock at the same moment, every one of them citing energy. We expect the

Fed to join them with an actual increase, most plausibly in the autumn, rather than the cut the market was pricing at the start of the year.

Sources: Federal Reserve, European Central Bank, Bank of Japan, Swiss National Bank and Banco Central do Brasil, June 2026.

4. The mega-IPO is draining the retail bid

The most distinctive risk in the US tape this month is not valuation, it is liquidity, and it is hiding in the flow data. SpaceX listed on 12 June at an offer price of 135 dollars, opened at 150 and closed its first session at 161, a gain of 19 per cent, at a valuation of roughly 1.77 trillion dollars that made it instantly the seventh largest company in the United States and the largest initial public offering in history. Retail demand was extraordinary, with more than 100 billion dollars of retail orders submitted. The part the headlines missed is where that money came from. According to the flow-tracking firm VandaTrack, aggregate retail net buying in the days around the listing was on track for its weakest week since March 2020, because retail investors were raising cash and liquidating their existing positions, the artificial-intelligence winners above all, to fund their SpaceX orders. That rotation is the most plausible explanation for the sharp semiconductor selloff in the same week, when Nvidia fell 2.4 per cent, Broadcom 4.4 per cent, Micron 6.2 per cent and Advanced Micro Devices 7.3 per cent in a single session. This is the mechanism by which a mega-listing drains a market: it does not add a marginal buyer, it forces existing holders to sell in order to fund the new paper. History is consistent that heavy issuance of this kind tends to coincide with liquidity peaks rather than troughs. The same retail bid that drove the record options activity we flagged last month is now being redirected into a single new listing, leaving the incumbents thinner. In our view this is a late-cycle liquidity signal, and it sits directly beneath the euphoria the headline indices still display.

5. Portfolio Positioning

Our positioning follows directly from the analysis above and is little changed in direction from last month, though the case for it has strengthened.

Gold remains our largest allocation. Its path this year illustrates the thesis rather than undermining it: gold set a record near 5,600 dollars per ounce in late January and then round-tripped the entire move, trading near 4,275 dollars after falling close to 2 per cent on the Fed decision, which leaves it roughly flat on the year. We read that drawdown as a liquidity event, the same forced selling that hit every asset as the rate path repriced, not as a verdict on gold's role. The structural bid beneath it has not moved: central banks have continued to accumulate through the volatility and at record prices, with the People's Bank of China extending its buying streak to nineteen consecutive months and Poland among the largest buyers, and that demand is a political decision to reduce dependence on any single currency rather than a financial one. We expect gold to resume its advance as the liquidity pressure clears.

In equities we remain selective and underweight the expensive, crowded US market in favour of cheaper exposures with their own drivers. Switzerland offers defensive quality through Roche, Novartis and Nestlé, with the Swiss Market Index near 13,700 and the Swiss National Bank holding its rate at zero. Brazil trades on a forward earnings multiple near nine, with the

Ibovespa around 169,000, and its central bank cut the Selic rate to 14.25 per cent this week, easing into the cycle while the developed world tightens. China offers the most striking mispricing: per Goldman Sachs research, it accounts for roughly 10 per cent of global artificial-intelligence market capitalisation and 16 per cent of the sector's revenue, yet global funds hold only about 1.2 per cent of their technology allocations there, a gap that leaves substantial room for inflows if the underweight corrects.

We continue to avoid US fixed-income duration. This week's move, with the two-year yield jumping on the flip to a hiking bias, confirms that the entry point remains poor. And we continue to expect higher US equity volatility than the market is pricing. The VIX near 17 looks complacent against a Fed that has turned, a truce that could wobble, and a retail liquidity base that is being drained into new issuance.

Conclusion

The contradiction at the centre of this note is between a market trading on relief and a data set that does not support it. The bull case requires three things to hold at once: the truce must hold and mature into a durable settlement; oil must fall fast enough and far enough to reverse the producer-level pressure before it reaches the consumer; and the labour market must soften enough to give the Fed cover to ignore its own projections and avoid the increase it has now signalled. Each is possible. The probability that all three resolve favourably together is, in our view, lower than the relief rally implies. We are positioned for the more likely path: inflation that stays elevated as the pipeline empties into consumer prices, a Fed that tightens before it eases, and a US equity market whose liquidity is quietly thinning even as the index holds near its highs.

Important Information

This document is a research note prepared by Ryan Lemand, Founder and CEO of the Neovision Group, for institutional and professional audiences. It does not constitute investment advice, an offer to sell, or a solicitation to buy any financial instrument. All market data are sourced from publicly available information as of the close on 17 June 2026, including but not limited to the Federal Reserve, the US Bureau of Labor Statistics, the US Bureau of Economic Analysis, the European Central Bank, the Bank of Japan, S&P Dow Jones Indices, CME Group, the World Gold Council, the People's Bank of China, the US Energy Information Administration and the International Energy Agency, Goldman Sachs research, VandaTrack, TradingEconomics, Bloomberg, CNBC and direct exchange disclosures. Past performance is not indicative of future results. Neovision Wealth Management Limited is regulated by the FSRA in ADGM. Neovision Investment Fund Management (NIFM) is regulated by the CMA in onshore UAE. Héritage Riviera SA is authorised by FINMA in Switzerland.