An important week for the Eurozone, despite an up-tick in inflation in May, the ECB is likely to cut rates for the first time since the Eurozone and the global economy was plunged into a deep recession at the start of the covid pandemic.
What happened last week.
(A forex, index, and commodity market review)
Weekly change (amount change and percentage change on the week)
FTSE -4 -0.07%
DAX -113 -0.60%
DOW -378 -0.96%
S&P -14 -0.26%
NASDQ -268 -1.42%
NIKKEI -64 -0.16%
Hang Seng -509 -2.72%
US and European markets were hit mid-last week with a sell-off in global bonds which was sparked by an underwhelming sale of $44 Bln of seven-year US Treasury Notes. This followed on from a poor two and five year auction the previous day. This sent bond yields to their highest level in just under a month which unnerved equities. Higher treasury yields mean the likelihood of higher borrowing costs for corporations which resulted in the S&P500 falling 0.74%, its worst day in May.
Despite the mid-week slump, most markets recovered some of those losses last Friday with the US PCE inflation reading coming in as expected, with Core PCE at +2.8% which helped calm those mid-week jitters.
Nvidia continues to trade in a fashion that some might describe as a mid-cap stock. Since Nvidia’s results from May 23rd, the stock has increased in value by over $350 bln, valuing the company at a staggering $2.69 trillion.
UK markets suffered a bout of profit taking following the strong run-up since mid-April. The mood in the global bond markets did not help although the outlook in the UK seems rosier that most economists were expecting at the start of the year. A recent survey by Lloyds Bank recorded business confidence at a ten-year high which suggest the economy is building some momentum as companies are more optimistic about their prospects.
Eurozone markets were and are gripped by interest rate speculation as we start the week when the ECB could well cut interest rates by 0.25% from the record high of 4%. Despite the jump in inflation to 2.6% from 2.4% reported in May, the ECB appears committed to cutting
rates although expectations have shifted slightly for future rate cuts. The consensus is for another rate cut before year end on top of the one expected this week.
EURUSD Unchanged
GBPUSD Unchanged
USDJPY +0.23 +0.17%
Foreign exchange markets were range bound last week ahead of the ECB policy meeting this week. Despite expectations for a cut in Eurozone interest rates this week, analysts were less convinced that the ECB would follow this up with further rate cuts later this year, The ECB has always said this it takes a data dependent approach and if the inflation rate ticks up again in June then expectations will diminish about further cuts.
Sterling consolidated its gains from over the last 6 weeks as expectations of rate cuts are clouded by the UK election on July 4th. The inflation reading on the 19th of June ahead of the MPC meeting on the 20th June will likely determine whether the Bank cuts rates, which seems less likely ahead of the election.
Gold -5 -0.21%
UK OIL -0.56 -0.68%
US OIL -0.49 -0.63%
Oil weakened early last week ahead of the OPEX+ meeting at the weekend. OPEC has agreed to extend the voluntary cuts (from Saudi Sarabia and Russia) of 2.2 million barrels per day which was the least the market was expecting. OPEC said that talks were continuing about cuts for Q4 and into 2025.
Gold continues to trade with higher volatility with continued retail and state interest in China.
Data and events in the coming week
(What traders need to look out for in the week ahead)
An important week for Eurozone markets with the ECB governing council expected to cut rates. We also have US non-Farm employment data which is released on the first Friday of each month.
Monday
US ISM manufacturing PMI. A measure of manufacturing activity. Above 50 indicates an expanding sector. Picking up.
Tuesday
-
Wednesday
US ADP non-farm employment data. 175K new jobs. Improving picture. Less impactful that the official data published on Friday.
Canada Bank of Canada policy meeting. 0.25% rate cut expected. Press conference. CAD sensitive.
US ISM Services PMI data. Increase expected above 50 after last month’s surprise fall. USD sensitive.
Thursday
Eurozone ECB policy meeting. Despite inflation ticking up to 2.6% from 2.4% in May, the governing council is committed to this first intertest rate cut since the early days of the pandemic. The press conference will be interesting and key for determining whether ECB will make further cuts. EUR and Eurozone markets sensitive.
Friday
US Non-Farm employment change. A strong labour market, along with inflation higher than desired, are the two reasons why the FED will be keeping rates higher for longer. USD and US assets sensitive to this release. USD, US, and global assets sensitive.
