Trading Week Ahead

Week of June 10

Last week, the BOC and ECB cut interest rates as expected, supporting the growing narrative of monetary policy easing.

The coming week will still be active on the monetary policy front, with all eyes on the Fed's interest rate decision on Wednesday, shortly after the release of US CPI figures. The BOJ will also hold its monpol meeting, with some speculating surprising developments.

The Week in Review

Central banks finally got around to reducing interest rates, which was a key theme last week. Notably, the ECB lowered rates by 0.25 basis points to 3.75%, as widely expected, but the statement and presser were viewed as slightly hawkish. Some members expressed concern over potentially premature easing, given raised inflation forecasts for the year. However, they reiterated the data-driven approach to future decisions. EURUSD remains below the 1.0916 resistance reached ahead of the meeting last Tuesday, with support below 1.0850.

Canada's central bank also cut rates as expected, with Governor Tiff Macklem emphasising a meeting-by-meeting examination of inflation. USDCAD fluctuated over the week within a tightening range between 1.36 and 1.3740 and may continue consolidating.

China saw an unexpectedly expanded trade surplus as exports increased at the fastest annual pace of 7.6% in over a year. The US trade deficit shrank as exports fell more sharply than imports, including a narrowed deficit with China.

China's manufacturing PMI figure was the highest since June 2022. European PMI readings were disappointing, weakening bond yields across economies and offsetting the ECB's rate action.

BOJ Deputy Governor Ryozo Himino said monetary policy inappropriately targeted FX rates, noting signs of accelerating underlying inflation.

Election results included South Africa's ANC losing its majority for the first time post-apartheid, seeking unity cooperation. Mexico saw AMLO protege Claudia Scheinbaum as a winner. India's general election showed the ruling BJP leading by a smaller margin than forecasted, concerning markets.

The proposed ceasefire in Gaza received limited support in Israel without agreement amid ongoing operations.

Biggest Market Movers

• WTI crude oil fluctuated wildly throughout the week. It lost over 6% on Monday and Tuesday due to worries over demand but recovered most of the losses on subsequent days thanks to reassurances from OPEC+ about suspending supplies.
• Gold trended upwards over the course of the week, following weakness in US yields, but disappointed on Friday.
• The FTSE 100 fell over the week, recording its third consecutive weekly decline. Market participants were monitoring the potential economic impacts of upcoming elections.
• Yen strengthened during the week after reports that the BOJ is considering reducing its bond purchase programme later this month.

Top Events in the Week Ahead

Interest rate decisions will once again be the main focus over the coming week.

FOMC in Focus

Attention will turn to the FOMC decision midweek. There is consensus that policy will remain unchanged, so markets will scrutinise the economic outlook to gauge whether the anticipated September rate cut will materialise. The Fed enters its August recess when the Jackson Hole Symposium occurs, leaving a wider gap than usual between rate decisions. The latest FOMC economic projections on growth and inflation will be key to reassuring the market about September's move. Nasdaq may confirm a break above 19K or pullback towards 18K.

On Friday, the BOJ also meets. There was speculation another Japanese rate hike could happen, but markets see little risk of that. Instead, the focus involves reports on possibly scaling back unlimited bond purchases, deemed a hawkish shift. USDJPY may find next support around 152.

Inflation Seen Easing

Coincidentally, the US will release its latest CPI figures on the same day as the FOMC meeting, with headline inflation expected to stay at 3.4%. Last month's downward reversal reassured markets over imminent rate cuts, so participants will watch if the easing trend persists ahead of policy guidance. US PPI follows the next day and is anticipated to show diminishing inflationary pressures.

UK Data Maintaining the Trend

Crucial UK economic indicators will be released over the coming days. Tuesday's employment numbers may keep the claimant count and unemployment rate in single digits and steady, respectively. Later, the UK monthly GDP for April is projected to evidence solid 0.2% growth, though below the unusually high 0.4% last month. Cable recorded a 4-week streak to 1.28 last week, exposing 1.29 next.

Other Events and Earnings

NAB will publish its survey on business confidence in Australia on Tuesday. Chinese inflation figures will be released on Wednesday. Data on new loans issued in China will be disclosed on Thursday, along with Westpac Bank's survey of consumer sentiment in Australia. Trade balance data for the EU is scheduled for Friday, followed by the UoM consumer confidence survey for the US.

Corporate earnings are expected to be limited this week. Only a small number of prominent companies, such as Oracle, GameStop, Broadcom, Adobe, and Signet Jewellers, will declare their latest financial results.