- June 6, 2026
- Posted by: Tresmark
- Categories:
The problem with a three-way street is that everyone thinks they have the right of way.
Three narratives. Three directions. One economy.
Who will emerge?
Lane 1: The Consumer
Speaking to the consumer department of one of Pakistan’s largest banks, I was told something surprising. Credit card spending had broken all previous records.
Just when the war started.
At first glance, it makes little sense. Wars create uncertainty. Uncertainty usually makes people cautious. Yet consumers appeared to be doing the exact opposite.
When people fear prices may be higher tomorrow, they often choose to spend today. Waiting suddenly feels expensive.
In a strange way, the fear of inflation can actually spur inflation.
Lane 1: The consumer may be fuelling inflation
Lane 2: The Oil Trader
At the height of the war, many expected Brent to surge past $150.
It never did. Instead, after briefly spiking, oil slowly drifted back below $100. The market’s attention is shifting from supply disruption to demand destruction.
The biggest reason is China. Demand has been softer than expected, alternative energy adoption continues to grow, and reserve levels remain comfortable.
Lane 2: What if demand is the bigger story? What if the world doesn’t run out of oil?
Lane 3: The Bond Trader
Then came Friday’s jobs report.
It crushed AI stocks and triggered the Nasdaq’s worst day in over a year, sending Intel, AMD and Oracle down more than 10%, while Nvidia, Meta and Tesla fell around 6%. At the same time, US 10-year Treasury yields hurtled towards 4.7%.
The market suddenly stopped talking about rate cuts and started talking about rate hikes.
Lane 3: What if rates move higher?
3 lanes, Markets are still deciding which one matters most. Yet somewhere between these three roads lies the answer to what happens next.
And that brings us to Pakistan.
Pakistan’s Interest Rate Dilemma
Yesterday, swap premiums crashed by 15-20% across various tenors. This wasn’t driven by Dollar liquidity, instead, it appears the market has significantly reduced its expectations of a rate hike.
The logic is that if oil remains elevated but stays below the $110-125 range, inflation is likely to peak in June before returning to single digits by September. On a forward-looking basis, the case for a rate hike becomes difficult to justify.
But here’s the dilemma, Pakistan’s inflation outlook may be improving, yet global interest rates are moving in the opposite direction. Friday’s US jobs report pushed Treasury yields sharply higher and revived discussions around higher-for-longer rates. Similarly other Central Banks, most notably the ECB & BoE are looking to hike
Pakistan does not operate in isolation. If US yields continue to rise, Pakistan may eventually need to adjust its own rate curve, regardless of what domestic inflation is doing.
Local inflation says cut, global markets say hold, and bond markets are asking whether rates should be higher.
Rupee Outlook
The interbank market is flush with Dollars. In fact, the market is expecting remittances to cross the revered $4bn mark. With this infusion of liquidity, it remains to be seen whether SBP can close the year at its target of $18bn reserves.
The Rupee looks comfortable at the moment and exporters are once again selling forwards to capture the premium. However, premiums collapsed yesterday and may rebound in the coming week. Despite the near-term comfort, questions remain around Pakistan’s longer-term funding requirements.
A report suggesting that the Federal Budget has used 290/$ for its calculations created some confusion. However, the budgeting department is separate, and the same methodology was used in previous years as well. This should not be interpreted as a tacit signal of where policymakers expect the Rupee to trade.
