Trading Week Ahead

Week of June 3

Last week's economic data focused on inflation figures from the US and Eurozone, with PCE and CPI numbers -respectively- keeping intact expectations that interest rates will be reduced despite beating estimates in Europe.

Important meetings from the BOC and ECB will take place next week, in addition to the US nonfarm Payrolls at the end of the week.

The Week in Review

The week began slowly, with lower trading volumes due to Monday public holidays in the US and UK. Indices remained under pressure throughout the week as investors worried about upcoming risk events prior to the release of key data at the end of the week

ECB officials communicated limitedly during the mid-week pre-meeting blackout period. CPI inflation rose above expectations, driving the euro higher on Friday as investors reconsidered price pressures.

Fed speakers indicated further interest rate rises could occur, with FOMC voter Neel Kashkari stating hikes were still possible. Following further developments, the Nasdaq returned to its 21-day SMA around 18500.

Australian CPI in April was higher than expected, following slower retail sales and a fall in consumer confidence.

A BOJ board member said a rapid yen weakening could affect inflation expectations and require a faster tightening of monetary policy.

In geopolitics, UK Prime Minister Rishi Sunak announced a general election on July 4, with the incumbent Conservative party polling behind by double digits. Moreover, Chinese military exercises in the Taiwan Strait concluded, but tensions remained elevated following visits by senior US officials to the island. Gold traded in a narrowing range.

Biggest Market Movers

• USDJPY experienced volatility over the week, with Japanese yields rising above 1.1% for the first time in over ten years, prompting commentary from BOJ officials that further interest rate increases may occur.
• AUDUSD propped higher after bouncing off the 0.66 handle due to the absence of negative news from China and stronger-than-anticipated CPI, eying 0.67 next.
• The US dollar gained ground against other major currencies thanks to risk-off sentiment among investors and rising US yields, but it ended the week mixed.
• The euro depreciated to its weakest point against the British pound since August 2022, based on expectations about the timing of the ECB and BOE's interest rate cuts.

Top Events in the Week Ahead

Interest rate decisions from major central banks will be a highlight this week.

First Major Bank Still Expected to Cut

Absent any surprises driven by a hooter CPI, the ECB is expected to cut rates by 25 basis points, so the focus will be on guidance around future rate cuts. There is currently only a slight chance of a second rate cut being priced in by markets later in the year. ECB officials' commentary so far has focused on the timing of the first cut rather than what comes after, so President Christine Lagarde's post-meeting comments could impact markets. While trading above 1.08, EURUSD bulls could still attempt to reclaim 1.10.

The BOC meets a day before the ECB and is largely expected to keep rates steady, citing the need for more economic data. As it failed to break through 1.3750, USDCAD is exposed to further drops towards 1.3570.

NFP and the Easing Labor Market

NFP data from the US at week's end may also affect markets. Following a softer-than-forecast figure last month, analysts foresee another modest month of around 151,000 jobs added while inflation stays unchanged. The S&P 500 shows resistance at 5340 and support at 5150.

Trade Data and Growing Economy

Several countries will publish trade figures through the week. Investors will monitor Australia's trade balance, Canada's exports, and Germany's trade balance in hopes of signs of growing global demand boosting trade. Germany's trade balance is also anticipated to expand. The US trade deficit is projected to widen, while positive Chinese exports may signal strong demand.

Other Events and Earnings

Several key economic indicators will be released during the week, and quarterly earnings will be announced. On Monday, China will publish the Caixin Manufacturing PMI for May. Switzerland will report inflation data for May on Tuesday. Australia will disclose GDP figures for the first quarter on Wednesday. Germany factory orders for April are scheduled for Thursday, along with the Ivey PMI for Canada. Friday will see the release of UK housing prices from Halifax as well as Canadian employment numbers.

Gitlab, CrowdStrike, Ferguson, Lululemon, GameStop, Brown-Forman, and NIO are among publicly traded companies expected to announce earnings in the coming days.