Trading Week Ahead

Geopolitics were the main theme during the prior week, with election results dominating news headlines ahead of the upcoming US employment figures.

For the coming week, the latest US inflation data and UK monthly GDP figures are likely to be key focus areas as markets prepare for earnings season.

Week in Review

The week began with equity markets rallying in response to results from the first round of parliamentary elections in France, where far-right candidates did not gain as much support as initially expected. The relief rally was later supported further by comments from the heads of the ECB and Fed, who met in Portugal to provide reassurances of their dovish monetary policy stances. Europe's top 50 benchmark reclaimed the 5k handle as a result by the end of the week.

Politics continued dominating the week, with negotiations regarding second-round election candidates in France and the UK elections ongoing. British voters elected a new Prime Minister, resulting in Labour gaining one of the largest parliamentary majorities in decades. Markets also monitored any prior US presidential debate updates and rumours of pressure on the incumbent to withdraw his candidacy. With US markets closed for half a day on Wednesday and all day Thursday for a holiday, geopolitical news generated increased attention.

On the calendar front, the latest FOMC minutes showed differing views among members on the appropriate pace of monetary tightening. Eurozone inflation data signalled persistence in price pressures, though several ECB speakers in Portugal reiterated their stance of no pre-determined policy path. Multiple Japanese officials discussed concerns over the yen's rapid weakening, but no currency intervention was initiated. Chinese private manufacturing PMI rose to its highest level since May 2021, while the official gauge posted a second straight month of contraction. Australian retail sales increased at the fastest pace year-to-date, though the statistics agency warned of discount-driven discretionary spending and stagnant underlying demand.

Biggest Market Movers

• The Japanese yen reached its highest level in 38 years at 162 on Wednesday after a weaker Tankan survey revealed declining sentiment for the first time in 16 months.
• Nasdaq reached a new record high above 20k amidst a risk-on environment following the French elections and decreasing interest rates after the US presidential debate.
• EURUSD reversed 1% from Tuesday's low in the aftermath of the first French elections round, reclaiming 1.08.
• Cable rose over 1% past to an early-June high following certainty in the UK elections, retesting the $1.28 handle.
• The price of crude trended towards $84 per barrel in anticipation of higher demand during the summer months and falling inventory levels.

Top Events in the Week Ahead

The week is expected to start slowly regarding macroeconomic data, allowing time to assess the outcome of the recent French parliamentary elections.

US Focus on JP Testimony, CPI

Markets will then focus on Fed Chair Jerome Powell's scheduled testimony before Congress. He will likely reiterate his views expressed last week that significant progress has been made in lowering inflation, but more data is needed before adjusting interest rates. His comments will provide context for upcoming US CPI figures on Thursday, which are forecast to show headline inflation declining to 3.1% and core inflation falling to 3.2%. In doing so, gold may add to its recent gains, moving towards $2420 per ounce unless it loses the 50-day SMA anear $2340 per ounce once again.

UK to Remain in the Spotlight

Developments from the new UK government will be monitored, including implications from policy changes announced in the King's Speech. Attention will also be paid to the composition of the new Cabinet. On Thursday, monthly GDP figures are anticipated to show the three-month average remaining at 0.7%, indicating the economy continues rebounding from last year's brief recession. UK's Footsie failed to recapture the 50-SMA near 8260, risking giving back the gains in case of disappointments.

Other Events and Earnings

Monday features Germany's trade balance. Data from Australia on Tuesday includes Westpack and NAB consumer confidence. Wednesday has Chinese inflation numbers. Thursday includes Japan machinery orders. The UOM consumer sentiment index is published on Friday.

Some company earnings reports from major US banks are expected this week, ahead of Friday's unofficial start of the reporting season. Companies potentially reporting include Greenbrier, Pepsico, Wells Fargo, JPMorgan, Bank of New York Mellon, Citigroup, PageGroup and an operations update from Repsol.