Markets Week Ahead: S&P 500, Gold, US Dollar; US ISM, Euro Area Retail Sales, RBA, Japan Econ Watchers, China Inflation
The global equity markets experienced an increase, primarily attributed to substantial gains in the US equities. This was a result of the passage of a debt ceiling bill that averted an impending US default, which was well-received by the markets. The negotiations surrounding the debt in Washington have been a significant factor in recent market shifts. The successful passage of legislation that increases the government’s $31.4 trillion debt ceiling has eliminated a major source of uncertainty for investors.
In the financial market, the S&P 500 experienced a 1.8% increase and the Nasdaq 100 index saw a surge of 1.7%. Meanwhile, the German DAX 40 index showed a moderate improvement of 0.4%, while the UK FTSE 100 index experienced a slight decline of 0.2%. Over in Asia, the Hang Seng index demonstrated an increase of 1.1%, while Japan’s Nikkei 225 index experienced a significant rise of 2.1%.
Past week market performance
The Economic Surprise Index reports that recent US data has exceeded expectations. This includes a significant growth in nonfarm payrolls in May, indicating a tightening labor market. Despite this, the US Federal Reserve is anticipated to halt rate hikes due to moderating inflation and steadfast economic growth, which has led to a favorable condition for equities.
The current market assessment suggests a 74% probability of a pause at the June 13-14 FOMC meeting. This is a significant increase from last week’s estimation of 35%. The market’s sentiment has been influenced by remarks made by several Fed officials, including the vice chair-designate, who hinted at the possibility of a pause in June. In particular, vice chair nominee Philip Jefferson stated that skipping a rate hike would provide the Committee with more data to inform future decisions on additional policy measures. Nevertheless, he cautioned against interpreting such a decision as signaling the end of the tightening cycle. Fed Chair Powell also acknowledged the likelihood of a pause during the June meeting.
Several important economic indicators are scheduled to be released in the upcoming week. The US ISM Services PMI for May and the China Caixin Services PMI for May will be published on Monday. On Tuesday, the Reserve Bank of Australia will announce its interest rate decision, and Euro area retail sales data will also be released. Wednesday will see the release of RBA Governor Lowe’s speech and Australia’s Q1 GDP figures. Additionally, Japan’s Q1 GDP and Eco Watchers Survey data, as well as Euro area Q1 GDP figures, are scheduled to be published on Thursday. Finally, China’s May inflation data is due to be released on Friday.
Forecasts:
- The EUR/USD currency pair ended the week on a subdued note, indicating a lack of direction. The Euro also experienced a decline against the GBP and JPY. Despite a dearth of upcoming catalysts, is there any potential for the Euro to recover from its slump?
- In the upcoming week, the British Pound is expected to maintain its strength against several currencies, which can be attributed to the forecasted increase in UK interest rates. The GBP/USD, EUR/GBP, and GBP/JPY exchange rates are the most prominent indicators of this trend.
- The outlook for the Australian Dollar has caught the attention of analysts as the Reserve Bank of Australia’s (RBA) upcoming decisions could have a significant impact. Although the Australian Dollar rebounded from a recent low due to the resolution of the US debt ceiling, it remains uncertain how the RBA will act in the coming week. The possibility of surprises from the RBA may affect the Australian Dollar’s performance.
- The US Dollar experienced a pause in its momentum over the previous week, as the labor market remained constricted and consequently, the Federal Reserve may recommence tightening in July. Due to the absence of significant economic data forthcoming, DXY’s attention is now shifted towards Wall Street.
- The current gold price forecast indicates a shift towards bearish sentiment due to fundamental factors. The resilience of the US economy may lead to a continuation of interest rate hikes by the Federal Reserve, which could delay any hopes of achieving a new record high for gold.
- Despite a positive showing in average hourly earnings, there are indications of overheating in the US stock market as the S&P 500 and Nasdaq continue to experience a surge. This is due, in part, to a more dovish stance by the Federal Reserve and an agreement on the debt ceiling. As we head into the weekend, it remains to be seen how these factors will impact stock performance going forward.
