Stocks have marked another week of significant gains last week and the outlook has somewhat stabilised after some Fed officials signalled that the tightening cycle might pause after two more 50 basis points interest rate hikes. The markets digested the news quickly, however increasing inflationary pressures could still prevent the central bank from stopping its monetary policy tightening cycle.

The U.S. dollar continued to cede ground to antipodeans and marked it’s longest losing streak since July 2020. With other major central banks signalling higher rates, the markets have reacted by repricing the USD, despite a looming tightening of the Fed’s balance sheet which starts this week – on the 1^st of June.

Geopolitical tensions continued to build up, sending oil prices skyrocketing to their highest level since about a week into the Russian invasion of Ukraine. With the European embargo on Russian oil taking shape this week, the outlook for risk assets, especially in non-oil producing countries has deteriorated.

Economic data highlights

Monday 30^th of May

·         German Inflation
·         Eurozone Business Sentiment
·         Fed’s Waller Speech

Tuesday 31^st of May

·         French and Eurozone Inflation
·         Canadian GDP
·         US House Price Index
·         Chicago PMI

Wednesday 1^st of June

·         Australian GDP
·         UK House Prices, European PMIs
·         US ISM Manufacturing PMI, ECB & Fed Speakers
 
Thursday 2^nd of June

·         UK Bank Holiday
·         Australia Trade Balance
·         Eurozone Producer Prices, Swiss CPI
·         US ADP Employment Change, Jobless Claims

Friday 3^rd of June

·         Germany Trade Balance, Eurozone PMIs
·         US Non-Farm Payrolls, Unemployment
·         US Services PMI
 

• US Non-Farm Payrolls & Unemployment

• European Inflation & PMIs

• Fed & ECB Speakers on Wednesday

 
The final days of May are behind us, and the first days of June offer a relatively light calendar when compared to the past couple of weeks. The main focus of the market this week will be the Non-Farm Payrolls report out of the US, reported alongside the unemployment figures. Some Fed and ECB speakers on Wednesday aren’t likely to present anything we haven’t already known. Eurozone and US PMIs on both manufacturing and services could be key movers when it comes to rate hikes expectations on both sides of the Atlantic. For the time being the U.S. economy appears to be more resilient, therefore increasing the chances that the Fed hikes rates more than 2 times until the end of its cycle.
 

European Inflation Continues to Climb

 
While the discussion in the U.S. is about rate hike pauses, the ECB is likely to have a vibrant discussion on the pace at which the central bank will be increasing interest rates in July. Some members are favoring a 50 bps hike, but the majority on the Governing Council, is likely to prevail for a more dovish, 25 basis points increase.
 
Aside from Consumer inflation, which has printed the highest levels since the creation of the euro, producer prices could also be in focus for the market to assess how much of the price pressures companies are facing are passed onto the consumer.
 

US PMIs & Unemployment

 
The latest news about the U.S. labor market are likely to be the most important piece of data this week, but the ISM manufacturing and services surveys aren’t to be excluded from the equation. Any positive surprises on both counts could lead to a pause in the USD’s decline over recent weeks and reinstate the Greenback as the top-performer. With that said, the opposite outcome is also valid – if the U.S. labor market is weaker than expected and growth worries resurface, the rate hiking path of the Fed could well be repriced by the market.
 

Oil Prices Peaking?

 
With the European oil embargo on Russian exports finally taking shape, the oil market is priced to perfection on the upside. Recent news reports however are suggesting that OPEC could be excluding Russia’s output from production quotas soon, a move which is likely to result in more oil brought into the market by other producers.