What happened last week.
(A forex, index, and commodity market review)
Global equity markets were higher last week as US markets were relieved that core inflation data came in as expected at +0.3%. Whilst equities continue to push higher the US Dollar fell to its lowest level in 6 weeks as investors priced in the likelihood of two interest rate cuts by year-end.
Weekly change (amount change and percentage change on the week)
FTSE +7 +0.08%
DAX -71 -0.37%
DOW +517 +1.31%
S&P +87 +1.67%
NASDQ +400 +2.20%
NIKKEI +484 +1.27%
Hang Seng +764 +4.03%
Core inflation in the US came in at +0.3% in line with the consensus. The market reaction was one of relief as equities jumped again into further record territory. The markets were relieved because of the sense of gloom about rate prospects and the dire PPI data released the day before.
PPI, or Producer Price Index, is the change in prices paid at the factory gate. It measures the price of goods and services at the wholesale levels opposed to what consumers pay for these goods and services when they consume them. The Producer Price Index can be regarded as a precursor to future inflationary trends, as higher wholesale prices tend to lead to higher consumer prices.
So, when the CPI data was released, there was some relief all round that it did not follow the PPI data released the previous day. Of course, a higher PPI reading is more likely to affect CPI data over the coming months – like a leading indicator, rather than having any immediate effect.
The Dow Jones climbed over 500 points, closing just above the 40,000 level for the first time.
European markets were less buoyant, spending most of last consolidating gains from the previous weeks. The mood in Germany continues to improve with the ZEW Economic Sentiment index rising again as investors continue to push German and Eurozone markets higher. The broad IFO Business Climate survey of manufacturers, builders, wholesalers, services, and retailers has also been improving is a sign that the Eurozone Bloc’s largest member is started to improve, which is in part down to the improvement in the Chinese economy over the past few months.
In the UK, sentiment remains positive with equities consolidating gains over the past 6 weeks. The mining sector in the FTSE100 continues to be supported by the surging copper price which hit record highs last week as speculators and hedge funds continue to force the price higher. BHP’s proposed purchase of Anglo remains very much in the spotlight as Anglo continues to reject BHP’s advances,
putting forward its own plan to demerger some of its non-core assets to stay independent. Traders are also waiting for the inflation data to be released this week which could well determine when the bank of England start cutting interest rates. Forecasts are for CPI to fall sharply from 3.2% to 2.1% which is due to the 12% reduction in the regulatory cap on household energy bills last month. The FT points out that should CPI fall as expected, it would mean inflation is lower that the US inflation rate for the second consecutive month and the first time that it is lower than eurozone inflation rate. How times have changed, when inflation rates peaked, they were at 11.1%, far higher than in the US of the Eurozone. This will all help inform the MPC at the Bank of England at to when they cut interest rates.
EURUSD +0.99 +0.92%
GBPUSD +1.78 +1.42%
USDJPY Unchanged
The US Dollar fell last week as traders factored a greater probability of two rate cuts by the end of the year. Sterkling rallied with better-than-expected employment data although average earnings will not help the Bank of England as it deliberates when to cut rates. Sterling will also be benefitting from the increased M&A activity which would require any overseas acquirer to hedge their potential sterling exposure.
Gold +56 +2.37%
UK OIL +1.2 +1.45%
US OIL +1.63 +2.09%
Oil tricked higher last week having failed to break lower towards the $80 level over the past three weeks. A weaker US Dollar perhaps helped as the Israel / Hamas war continues to rumble on, albeit remaining contained to Gaza.
Gold continues to surge. Last week’s softer US Dollar helped push the precious metal into further record territory as Chinese demand remains strong.
Data and events in the coming week
(What traders need to look out for in the week ahead)
Am important week for Sterling markets with the release of the CPI keenly anticipated.
Monday
US Federal Reserve Governor Christopher Waller speaking at conference regarding the role of the U.S. Dollar. Interesting as some nations look to de-Dollarise the global economy.
Tuesday
Australia Release of Minutes from last Monetary Policy meeting. AUD sensitive.
US Christopher Waller speaking again – this time about the economic outlook and monetary policy at an online event. Could drop some hints about future rate cuts. USD sensitive.
UK Andrew Bailey speaking at an event at the London School of Economics. Markets will be on alerts. GBP sensitive to any comments about interest rates.
Wednesday
New Zealand Monetary Policy meeting RBNZ. No change in rates expected. NZD pairs sensitive.
UK CPI inflation data. Expected to fall sharply to 2.1% from 3.2% as the Energy Price Cap takes effect. GBP and UK assets sensitive.
US FOMC minutes. Minutes from the last meeting held on 1st May when rates were kept at 5.25 – 5.5%. The market will look for clues about prospects for rates cuts over the coming months. For now, forward rates imply one cut in November and one in December. USD and US assets sensitive.
Thursday
UK, Eurozone & US Manufacturing, and services data. An improvement in manufacturing across the board although Eurozone data still well below the 50 level which separates expansion from contraction.
Friday
UK Retail sales. Weather related issues continue to cause some more erratic data over the past three months. Retail sales expected to have fallen by 0.6% last month.
US Revised University of Michigan Consumer sentiment
