Week of June 12

After a relatively quiet week in which expectations for monetary policy consolidated, next week will see interest rate decisions from the FOMC, where a "skip" is expected, and the ECB, where a hike is expected.

Top Events in Review

The week started on relatively positive footing following a beat in jobs reported at the end of the prior week and OPEC+ announcing new production cuts. WTI closed more than 5% lower from its higher open but was able to stay afloat above the $70 per barrel barrier.

Optimism faded after Services PMI in Europe and the US disappointed, with markets turning largely directionless as traders were hunkering down ahead of interest rate decisions in the coming days. 

RBA and BOC hiked rates in surprise moves, with the latter causing a revision in expectations for a potential "skip" in rate hikes by the Fed.

EU Q1 GDP was revised into the negative, resulting in the shared economy technically entering a recession. However, it's not seen as affecting the chances that the ECB will hike this week. 

In geopolitics, the long-awaited spring Ukrainian counter-offensive was said to begin just days after the key Nova Krakhova dam was destroyed, causing flooding and threatening Europe's largest nuclear power plant. Both sides accuse the other of deliberately destroying the dam. 

Biggest Market Movers

The Aussie gained for a second week following a surprise hike by the RBA, which suggested that more rate hikes were coming to deal with higher inflation. Sixty-seven cents remains a critical level.

The loonie gained in the aftermath of the surprise BOC rate decision, with some traders suggesting that the move could imply the Fed won't pause at the next meeting out of concerns it might end up in a situation similar to the BOC. Under $1.34, the decline could continue.

Turkish lira reached a record high of 23.50 after the CBRT stepped back from interventions it had maintained before the election. It ended the week more than 10% down vs the dollar.

Top Events in the Week Ahead

Central bank meetings will be the dominant force next week, with the Fed, ECB, and BOJ lined up.

CPI Ahead of FOMC Opens Up Speculation

Before the FOMC sits down to decide whether to "skip" or not, the US will report inflation for May, which is expected to continue slowing down. Though the core rate is expected to remain sticky, with the annual rate expected to drop by just a decimal. 

The inflation outcome will likely be pivotal for expectations for the Fed and could generate strong market moves if it comes out of bounds from estimates. The consensus is still leaning in favour that the Fed will hold rates steady but heavily imply another hike was coming at the July meeting, the so-called "skip" scenario. But that consensus could evaporate quickly if inflation comes in above expectations. 

Gold price could accelerate towards $2033 if $2k gives way or slide towards $1865 per ounce, based on both events, with more weight on the FOMC being the latter. 

ECB and BOJ to Act As Broadly Expected

The ECB will meet the day after and is broadly expected to raise rates by another 25bps. The focus will be on what is communicated for meetings after that, as there isn't an agreement on what the ECB could do at its July meeting. EUR/USD is facing stiff resistance at $1.08, with a break past it exposing $1.09, while a slide below $1.0632 could be seen as an opportunity to short towards $1.05.

The BOJ is broadly expected to keep its policy unchanged, even with inflation above target and better than expected GDP. BOJ Governor Kazuo Ueda's post-rate decision presser will likely be the most scrutinised to see if any comments could indicate what regulators are thinking concerning the recent weakness in the yen. This could come into increased focus if the Fed foregoes the skip, with GBP/JPY eyeing 180.00 in the aftermath of a dovish speech. 171.00 could act as support above 166.30 if prices reverse.

Trove of UK Data During Blackout Period

With the BOE in its pre-rate decision blackout, the UK will provide several key economic indicators that could shape expectations for monetary policy. The unemployment rate is expected to remain steady at 3.9%, with a claimant count for April more than halving to 22K from 47K reported in March. Manufacturing production is expected to keep falling, while monthly GDP is expected to return to growth of 0.2% compared to -0.3% seen in March. 

The British Pound could reach fresh highs above $1.2682 should the low of $1.24 hold firm unless disappointment in data sends the cable under $1.23 and towards $1.2155.

Other events, earnings

Tuesday has Westpac and NAB consumer confidence figures for Australia. For Wednesday, the US PPI figures are expected. Thursday sees Japan's trade balance and the RBA monthly bulletin, followed by US retail sales figures. The US University of Michigan Consumer Sentiment Index is expected on Friday. 

Earnings expected for the week include Oracle, Sibanye, Stillwater Lennar, Adobe, Kroger, Jabil, and Tesco.