Week of June 5

The debt ceiling issue was resolved, and several Fed speakers started talking about "skipping" a rate hike at the next meeting. Now the markets have a relatively quiet week on the macro front dominated by trade data before the start of the next round of central bank meetings.

Top Events in Review

After reaching an agreement on raising the debt ceiling over the Memorial Day holiday weekend, the bill passed all of its hurdles by Thursday, was approved by the Senate and sent to President Joe Biden for signature. This allows the Treasury to set up an auction on Monday to start replenishing its cash, with market attention on just how much issuance will be forthcoming and how that could affect the bond market with the Fed still drawing out $90B in monthly liquidity. 

Throughout the week, US macro data showed weakness, including Dallas Fed manufacturing activity and ISM Manufacturing survey in contraction. There were signs of an improving inflation situation, though, with the Beige Book showing slowing price increases and the lowest price increase this year in the ISM survey. The dollar ended a 3-week winning streak.

Eurozone Inflation was slower than anticipated, with deflationary readings in France and Germany. Regardless, the ECB insisted that a rate hike is coming at the next meeting. Euro slid to a March low before reversing its course for a meagre gain but remained comfortably above $1.07 at the time of writing (ahead of the Nonfarm payrolls).

Markets saw mixed results from China's PMI, with the official NBS survey falling into contraction while the Caixin survey returned to expansion. 

Australian inflation increased and exceeded expectations, raising prospects of a hike at next week's RBA meeting. Aussie soared over 2% from its weekly low of $0.6460, reclaiming 66 cents.

Japan's capital spending in Q1 was reported above expectations and had the fastest growth since 2015, leading to speculation that Q1 GDP could be revised higher.

Biggest Market Movers

Crude prices were on a roller-coaster, dropping 8.40% in the early part of the week on slow demand in the US and disappointing Chinese PMI data but recovering a bit on renewed optimism later in the week with the approval of the debt ceiling bill and private manufacturing data from China. It still closed the week in the red but with a smaller loss of around 3% and above the $70/bbl barrier.

The yen strengthened more than 1% as various Japanese officials, including BOJ Governor Kazuo Ueda, expressed concern about the FX rate affecting forward monetary policy. It ended USDJPY's 3-week winning streak that saw prices extend shy off the 141.00 handle, increasing speculation for additional shorts toward 137.00.

Gold trended higher as the chances of a rate hike at the next meeting dwindled but failed to surpass last week's $1980/oz high. On the flip side, bulls seem to have done an excellent job at $1940, which remains a critical level of support.

Top Events in the Week Ahead

Trade is the theme for the coming week, as most significant economies report May trade balance, and investors look for indications of how the global economy was doing after mixed manufacturing data from China last week. 

Trade, Trade, Trade

The US trade deficit is expected to have expanded on slower exports and growing imports. In contrast, the Chinese trade surplus is expected to have expanded, with imports falling faster than exports growing. In Europe, Germany's trade balance is expected to have shrunk on weaker demand from China, whereas Canada is expected to show a smaller trade surplus on the back of weaker crude prices. Finally, Australia's trade surplus is also expected to shrink, with commodity prices under pressure last month.

RBA to Keep Hiking, Aussie On The Move 

Inflation in Australia was higher than expected, followed by an increase in wages, with the housing sector still running red hot. All these factors have pushed to a near-unanimous consensus that the RBA will hike by another 25bps. Australian Q1 GDP will be released the day after, which is expected to slightly slow annual growth to 2.4% from 2.7% in Q4. Aussie has started to move higher in anticipation, with $0.6738 in focus while above $0.6520 against the beleaguered greenback.

Loonie Proves BOC to Stay Put

Canada has seen inflation continue declining despite the BOC simply holding the line. With a choppy economic outlook, there is a strong consensus that the BOC will stay put, waiting for prices to normalise without weighing more on the economy. Loonie revealed the narrative, with USDCAD falling from $1.36 to $1.34 on the week, bringing $1.3240 into the spotlight unless bulls recapture $1.3484.

Other Events and Earnings

Monday has US ISM Services PMI. Tuesday sees German factory orders and Canada's Ivey PMI. Wednesday includes France's trade balance. Japan's final Q1 GDP will be released on Thursday. Friday will see Canadian jobs numbers. 

A relatively light earnings calendar includes names such as Ferguson, JM Smucker, Brown Forman, Campbell Soup, FirstGroup and NIO.