- Fed expected to stick to script despite 5% CPI
- SNB and BOJ highly unlikely to make any changes either
- Data highlights include jobs from UK and Australia and retail sales from US
- Markets ended second week of June on a cheerful note in Europe
European markets ripped higher to close the week in a bullish mood on Friday, a day after the S&P 500 had reached a new record peak. The US dollar also found some short-covering love ahead of the weekend and as investors wondered whether the Fed would signal tightening of its belt given the surging inflation. But overall, investors were in a cheerful mode to close the week, especially in Europe where they welcomed a dovish ECB policy statement and press conference on Thursday. Christine Lagarde said it is too early to discuss ending PEPP and the ECB pledged to buy Eurozone debt at a "significantly higher pace" than during the first months of the year.
With the central bank covering their backs, investors bought every single short-term dip in stocks, causing the Euro Stoxx 50 and the CAC 40 to hit new highs for the year on Friday. The German DAX broke its record peak hit in the previous week, while the FTSE
finally broke out of a tight consolidation range in a bullish technical move.
Crude oil continued its impressive rally with Brent touching $73 per barrel and WTI rising above $71 per barrel. Gold failed to take advantage of falling yields, as investors chose to invest in the racier equity markets, although silver closed the week higher. Bitcoin turned green from being red most of the week, as El Salvador became the first country in the world to adopt the digital currency as legal tender. Other cryptos fell.
HERE is how to trade volatile markets.
Looking Ahead
The week ahead features three major central bank decisions, albeit no changes are expected from any. Still, all eyes will be on the Federal Reserve as investors wonder how Jay Powell and his FOMC colleagues will react to the above-forecast inflation jump in May and what rising price pressures means for the future path of monetary policy now that there is less need to keep emergency stimulus measures in place.
UK Jobs data (Tues)
The Bank of England may have to start thinking about removing some of the emergency stimulus measures as lockdown measures are slowly removed. Investors will be paying closer attention to incoming data, including jobs. The unemployment rate is expected to have remained unchanged at 4.8%, though with the furlough scheme set to end in September it remains to be seen if the rate will stay down in the latter parts of the year.
US Retail Sales and PPI (Tuesday)
Headlines retail sales are expected to have fallen 0.6% in May after being flat in April, although core sales are seen rising 0.4% after dipping 0.8% previously. Consumer spending needs to stay strong to convince the Fed the recovery is on a sustainable path as the stimulus cheque boost fades. Meanwhile PPI will provide the Fed another indication of inflation as they judge whether price pressure are really going to be transitory.
UK CPI (Wednesday)
This should move the pound as discussed above. Headline CPI is expected to print 1.8% for May after 1.5% was recorded for April. Higher fuel prices will likely be blamed.
FOMC Meeting (Wednesday)
Will the Fed surprise the market with a hawkish statement or dot plots? Many market observers reckon Fed Chair Jay Powell may wait until the Jackson Hole summit in August to signal a reduction in bond purchases. Any hints of taper and we could see the markets turn volatile, while status quo should see the dollar come under renewed pressure.
Australian employment report (Thursday)
With the AUD/USD being stuck between a hard place and a rock, will the latest jobs data trigger a move? Analysts expect jobs to have risen by 30K, keeping the unemployment rate steady at 5.5%.
SNB policy decision (Thursday)
The world’s most boring central bank, AKA the Swiss National Bank is widely expected to keep its loose policy intact for the foreseeable future, although the recent strength of the franc might see the SNB introduce new measures – very unlikely in our view.
BOJ meeting (Thursday)
Copy and paste with minor changes to the policy wording is what you should expect from the Bank of Japan as it will undoubtedly maintain its aggressive asset purchases program.