Week Ahead of July 4

Week of July 4

Safe haven flows have reasserted themselves, sending stocks lower for the week, while remaining above the June lows. This first full week of the 3rd quarter could set the stage for any spike in summer volatility. 

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The week in review

More Fedspeak dominated markets over the last week. Fed Chairman Powell spurred a mid-week jump in stocks when he raised concerns about a recession. It was a case of ‘bad news is good news’ because it suggested the Fed might pause hiking rates. However a day later, Powell walked back these remarks alongside ECB President Lagarde, saying that fighting inflation is the number one priority, despite the risk higher rates pose to growth. 

Geopolitics was also a factor with attention on the G7 meeting and the intention to institute a price cap on Russian oil. This was followed up by the two-day NATO meeting.

There were no new developments on a new production increase plan at the OPEC+ meeting this month. A conversation between Macron and Biden shone light on the lack of capacity in Gulf states to increase crude production, despite high prices. WTI reached a high of $114/bbl for the week, which is now resistance going forward, but reversed to $105/bbl. Losing the support would expose $100/bbl.

Top events in the week ahead

Non FARM PAYROLLS

On Monday, Americans are off for a holiday with US stock Exchanges closed for July 4th. FOMC minutes released on Wednesday should be of lesser consequence given Powell’s testimony since the last Fed meeting. That means the release of NFP on Friday could be the week’s main event. 

The US is expected to report 295K jobs were added in June, a slowing for the pace from the prior month; but the unemployment rate is expected to remain stable. Other key data from the US expected next week include trade balance and wholesale inventories. 

USDJPY peaked at 138.00 but slid closer to 135.00 by week’s end. Consecutive indecision bars hint at reversal, but 134.30 has not even been revisited in the past two weeks. 

Rising Australian rates

The RBA meets on Tuesday, and the consensus is for another 50bps added to the rate hikes, following a recent spike in the minimum wage and high CPI figures. 

AUDUSD ended the week on a 2-year low near 68 cents, with 68.7 cents a potential weekly top. Downward, 66 cents is on the line. 

Nearing crunch time for the ECB

The ECB is near the pre-rate decision blackout, and it's likely there will be commentary on what to do about so-called ‘fragmentation’ i.e. bond yields in peripheral countries going up much more sharply than the centre. The central bank has to deliver convincingly on policy, or risk the Euro slipping to parity with the dollar. 

Services PMIs could shape some of the expectations, but Monday's PPI figures are expected to be in focus, providing more warning of upcoming European inflationary pressures. German industrial orders are also expected to fall, again.

Other events around the globe

Global food prices are likely to still be in focus, as several more countries report PPI figures for June. Switzerland will report CPI and jobs data, while Japan reports household spending on Friday. Canada's Ivey PMI is also on the docket. USDCHF and USDCAD have supports at f0.9520 and $1.2860, and resistances at f0.9665 and $1.2990