Trading Week Ahead

Week of June 17

Softer-than-expected US inflation figures last week shifted sentiment, bolstered by the Federal Reserve's decision to keep policy rates unchanged for another month.

Interest rate decisions continue this week, with meetings scheduled by the RBA and BOE, alongside key inflation data releases from the UK and Japan.

Week in Review

The week saw markets in a holding pattern ahead of the US inflation and policy events on Wednesday. US CPI came in lower than expected at 3.3% year-on-year, the lowest since February. Core CPI also grew at its slowest pace in over three years. This was followed by the FOMC maintaining interest rates as widely forecast, noting some progress on its inflation target but a need for more time. The interest rate projections were lowered, with only one cut seen this year compared to three in the previous forecast. However, markets seemed more focused on the positive inflation figures. In conclusion, interest rate expectations shifted to the first cut coming in September, with another potential decrease later in 2024.

UK unemployment rose unexpectedly against forecasts, though strong earnings growth outweighed concerns around labour market conditions. The UK's monthly GDP also missed targets due to manufacturing contraction and weaker performance than projections.

European election results pushed bond yields down as politicians consider governing coalitions.

China's central bank essentially halted gold purchases for the first time in 19 months.

Japan's GDP contracted at an annualised 1.8% rate.

Biggest Market Movers

• Oil prices soared 5% over the week, supported by the weakness of the US dollar, with bulls finding resistance at the $80 per barrel barrier.
• Major US stock indices jumped after the CPI data, with the S&P 500 and Nasdaq reaching new record highs and DJIA falling.
• EURUSD declined at the start of the week after the elections but regained losses on US inflation only to reverse back down below $1.07.
• NZDUSD strengthened across the board amid a China visit by Premier Li Keqiang and better-than-expected manufacturing figures but recoiled most of these gains after receiving rejection at 0.62.

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Top Events in the Week Ahead

The central banking world will remain a focal point.

RBA and BOE to Hold

The RBA is widely forecast to leave interest rates unchanged at their highest level since 2011. However, views diverge beyond this, as some analysts argue that softening economic data may spur an earlier-than-expected rate cut. Conversely, others highlight that ongoing resilience in the labour market could preclude a final hike from being completely ruled out. Markets appear to be pricing a hold, followed by Governor Michelle Bullock effectively endorsing rates that remain high for an extended period in line with commentary. Aussie appears right in the middle of 0.65 and 0.67 ahead of the meeting.

On Thursday, the BOE is nearly unanimously anticipated to maintain rates until the elections at least. This cautious approach is likely motivated by a desire to avoid impacting the upcoming UK general election scheduled in a fortnight. Despite elevated inflation and pockets of growth, current policy may persist until after the forthcoming CPI release, which could potentially influence sterling if diverging notably from consensus. Cable has struggled above $1.28 multiple times, risking declines towards $1.25

Inflation Coming into Line

Annual headline inflation in the UK for May is predicted to decline to 1.9% from 2.3%, returning below target. However, the core inflation rate, which is more significant for the BOE, is anticipated to remain above the target at 3.2%, albeit lower than the previous 3.9%. Markets will examine the data at their next meeting to determine potential implications for bank signals.

On Friday, Japan will report CPI for May, with both the core rate and overall rate predicted to stay above target, but this may have less impact as it follows so closely after the recent BOJ meeting.USDJPY might continue to consolidate until then, with 158.50 and 154.50 in focus.

Other Events and Earnings

The upcoming week will see several notable economic data releases and earnings reports. On Monday, machinery order figures for Japan and employment data for China will be published. Tuesday will bring US retail sales numbers. Japan's trade balance will be disclosed on Wednesday. New Zealand's Q1 GDP figures and US building permits for the same period are scheduled for Thursday. UK retail sales and Germany's preliminary manufacturing PMI for May will be released on Friday.

In terms of corporate reporting, several companies will announce earnings even as the season enters a slower summer period. These include Lennar, Woodside Energy, DS Smith, Ashtead, Accenture, Kroger and CarMax.