Markets Week Ahead: S&P 500, Gold, USD; Fed, ECB, BoJ, Germany ZEW, UK & Australia Jobs, US CPI, China Retail Sales
The suspension of the US debt ceiling, along with signs of improvement in global economic conditions and indications that US interest rates may have peaked, have contributed to a boost in investor confidence. This has led to a rise in global equity markets, with the MSCI All Country World index experiencing a 0.6% increase, the S&P 500 index advancing by 0.4%, and the Nasdaq 100 index remaining mostly stable. However, the German DAX 40 and UK FTSE 100 saw declines of 0.6%. In Asia, the Hang Seng index rose by 2.3%, while Japan’s Nikkei 225 saw an increase of 2.2%. In addition, risk-sensitive currencies such as the Australian and New Zealand dollars also experienced gains during this time period.
Past week market performance
Source Data: Bloomberg; chart prepared in Microsoft Excel
It should be noted that in this study, the Bloomberg Global Aggregate Total Return Index Unhedged USD serves as the proxy for Global Bonds. The BBG Commodity Total Return is the chosen proxy for Commodities, while the HFRX Global Hedge Fund Index is used as the proxy for Hedge Funds.
Although the data calendar was relatively light in the past week, the interest rate hikes by the Reserve Bank of Australia and the Bank of Canada were unexpected and emphasized that inflation remains above the central banks’ target, despite being moderated at the headline level. This draws attention to upcoming meetings of the US Federal Reserve, European Central Bank (ECB), and Bank of Japan (BoJ).
The current evaluation of the market indicates that there is a likelihood of approximately 70% for a pause during the June 13-14 FOMC meeting, which is an increase from 35% a week ago. This shift in assessment follows remarks made by several Fed officials, including the vice chair-designate, which suggest a potential ‘skip’ in June. However, it remains uncertain whether this will be the case as Tuesday’s US CPI data may exceed expectations.
The market anticipates that headline CPI will decrease to 4.1% on-year in May from April’s 4.9%, while core CPI is expected to remain unchanged at 0.4% on-month. It should be noted that even if the Fed decides to pause next week, they have emphasized that this should not be interpreted as an end to the tightening cycle.
It is anticipated that the ECB will raise its benchmark rate by 25 basis points at its upcoming meeting on Thursday, followed by another increase in July. However, it is possible that the BoJ may choose to keep its policy unchanged. During its previous meeting in April, the BoJ opted to maintain its ultra-accommodative stance due to concerns over the uncertain economic and inflationary landscape.
Upcoming economic data releases include China’s new yuan loans on Monday, Australia’s June Westpac consumer confidence, Germany’s May inflation and ZEW economic sentiment index, UK jobs, and US CPI data on Tuesday. Wednesday will see the release of UK GDP and manufacturing data for April, Euro area April industrial output, and US PPI data. On Thursday, the US FOMC meeting and ECB meeting will take place alongside the release of Australia May jobs data, New Zealand Q1 GDP, China fixed asset investment and retail sales, and US industrial production and retail sales for May. Finally, BOJ interest rate decision and US Michigan consumer sentiment data are due to be released on Friday.
Forecast:
- Next week, the EUR/USD’s immediate direction will be influenced by the forthcoming US inflation statistics, the Federal Reserve’s verdict on interest rates, and the European Central Bank’s declaration on monetary policy. These events are crucial in determining whether the EUR/USD is likely to be affected in the short term.
- The current state of the British Pound is demonstrating its robustness, as indicated by its ability to surpass previous resistance levels against the US dollar. Additionally, the EUR/GBP exchange rate has reached a low point that has not been observed since late August.
- The Australian Dollar demonstrated a positive outlook towards the end of last week following the unexpected hike by the RBA. The Federal Reserve’s actions are expected to attract attention and potentially induce fluctuations in the market.
- The upcoming week is of great significance for the gold market and the wider financial landscape. The FOMC meeting is expected to have a significant impact on gold prices, with some speculating that it may lead to a resurgence in prices towards the $2000 level. However, others suggest that a retest of $1900 may be on the horizon. Overall, the outlook for gold prices remains delicately poised and subject to a range of potential outcomes.
- Following a period of low trading activity, crude oil prices have turned their focus towards the United States in order to determine short-term directionality. This shift in attention comes as news from OPEC begins to fade.
- Tesla’s partnership with GM led to a 4.5% increase in the stock’s pre-market trading, resulting in a new bull market for US stocks. The upcoming FOMC rate meeting and US inflation are important events to monitor next week.
- The US Dollar experienced a decline during the previous week in anticipation of vital inflation data and the Federal Reserve’s monetary policy decision. The central bank is expected to take a break, but there is speculation about its potential indication of further tightening measures.
