Week of May 29

Wavering optimism and pessimism over the debt ceiling dominated the market, with the countdown beginning in earnest if a deal is not made over the weekend, as the "x-date" could be as soon as next Thursday.

Top Events in Review

Markets fluctuated through the week, gaining on prospects that a deal was close while dropping when meetings were put on hold or negotiators sounded pessimistic. Fitch stepped in on Thursday to put the US on watch negative ahead of a potential default. 

The Fed minutes showed members were evenly divided, and if there is a pause at the next meeting, the inclination was to hike again after that as inflation remained too high: a hawkish pause. 

Similar rhetoric came from the ECB around its 25th anniversary, with President Christine Lagarde insisting that action will be taken at the next meeting as inflation is expected to remain too high for too long. 

UK inflation came out of double digits, but the core rate rose to the highest since 1990, with BOE Governor Andrew Bailey saying that inflation was driven by secondary effects. Cable ended the week lower but did bounce at $1.2310 with a move past $1.2410 offering respite.

The RBNZ surprised by saying that it would pause the next meeting after hiking rates. Kiwi plunged more than 3% to 0.6045 and remains comfortably away from the ceiling of $0.6182 with the 60 cents in tight proximity.

Biggest Market Movers

Tech was in focus after Micron dropped 5% after it was sanctioned by China, prompting calls for retaliatory sanctions. Then Nvidia rose 27% after it reported blow-out results, helping push the entire Nasdaq higher to a somewhat flat close. It was down more than 2% through the week. Dow remained under pressure, ending the week more than 2% lower, with focus between 32500 and 33000.

WTI gained throughout the week and reached a more than 4% rise at some point after the EIA reported a massive drawdown in supplies, despite further releases from the SPR, just ahead of Memorial Day weekend. Crude turned around towards the end of the week though, on worries about the economy, managing a mere gain, albeit held the $70 per barrel line intact.

The dollar trended higher on safe-haven flows, and an increasing number of traders expecting a rate hike at the next meeting. The best-performing FX major was USD/JPY, which rose as high as 1.68% but ended lower after hitting resistance at 140.00, albeit gaining more than 1%.

Nat Gas tumbled as low as 10% after a spike in the prior month, with EIA reporting a 96B cf build, which is 340B cf above the five-year average. It corrected slightly to around 8% loss by the week's end.

Top Events in the Week Ahead

Markets are expected to see a slow start next week, with Monday a holiday in the US and several European bourses being closed as well. 

NFP Highlight of Weekly Macros

The highlight of the week will likely be on Friday, with the release of NFP, which are once again expected to come in below 200K at 180K, compared to the unexpectedly high 253K last time. The unemployment rate is expected to tick back up to 3.5%. JOLTS is expected to show that the number of job openings in April fell by 390K before that.

Ahead of the NFP, trades might want to shift their attention to the ISM Manufacturing PMI, which is expected to improve to 48 from 47.1 but remain in contraction in line with a series of data points showing a depressed industrial sector. 

Gold received rejection at $1937 per ounce, and if bulls can defend that, we might experience a surge up toward 2k. Otherwise, the risk of sliding toward the $1900 handle per ounce will increase.

Global PMIs and EU CPI on X-Day

On Thursday, Final PMIs are expected to show that European industrial activity remains in contraction, while China is expected to show a divergence. The official NBS figure is expected to come in as a contraction by the bare minimum, while the private survey is expected to show expansion by the minimum. 

On the same day, the EU will report its inflation rate, which is expected to come down to 6.5% from 7.0% prior, with a more modest reduction in the core rate to 5.4% from 5.6%. The Eurozone's unemployment rate is expected to remain steady at 6.5%. EUR/USD could head to lower territories if $1.07 breaks ahead of the critical events, exposing $1.0670 and 630. Contrary, $1.0760 might be local resistance, with a breakout unlikely unless 

June 1 is seen as the x-day in which the US Treasury could run out of money if a debt-ceiling deal is not made before then.

Other events and earnings

Tuesday has CB Consumer Confidence from the US. Wednesday sees Canada's Q2 GDP and consumer confidence from Japan. USD/CAD spiked more than 1% last week but found bears at $1.3655a and succumbed lower. $1.36 remains a critical level ahead, with lower swings marked by $1.3570 and $1.35 unless we witness an attempt toward $1.3730.

Earnings are expected to be light due to holidays, with companies scheduled to report, including HP, Salesforce, CrowdStrike, Broadcom, Dollar General, and  Lululemon.