Markets remained split between a rock and a hard place – with rising inflationary pressures clashing with recently more dovish remarks by Federal Reserve officials. While some Fed members have commented that they are comfortable with two more 50 basis points rate hikes, before pausing, oil prices continued to move higher, escalating price pressures.

Stocks threaded water, and the dollar continued its decline against antipodeans which got a boost from higher commodity prices as the economic outlook was fluctuating between higher costs and lower rate hikes expectations. Friday’s solid jobs report sent stocks lower and the US dollar higher as markets shifted their outlook to the all-important inflation report this Friday.

The geopolitical situation continued evolving with OPEC+ failing to resolve a supply shortage opened by declining production of Russian oil. The body did however raise quotas for other members, resulting in a 649,000 bpd extra supply for July and August. That was far from enough to stabilise oil prices, which continued to climb higher.

Economic data highlights

Monday 6^th of June

·         China Services PMI

Tuesday 7^th of June

·         Australian Interest Rates
·         German Factory Orders
·         US Trade Balance

Wednesday 8^th of June

·         Eurozone GDP

Thursday 9^th of June

·         Chinese Trade Data
·         ECB Interest Rate Decision

Friday 10^th of June

·         Chinese Inflation
·         US Inflation & Consumer Sentiment
 

• Australian & Eurozone Interest Rates
• UK House Prices & Eurozone GDP
• Chinese Trade & U.S. Inflation Key

 
The first full week of June starts light on Monday but includes three key events for foreign exchange and stock markets worldwide. Traders will have to wait until Friday to get the most important economic release – the U.S. CPI report. Australian and European central bankers are gathering for their regular rate hike meetings. Both the RBA and the ECB are expected to maintain a hawkish bias, so markets will be watching closely whether all of that rhetoric is already priced in.
 

Australian Rate Hike Odds

 
The Reserve Bank of Australia is committed to hiking rates over its next couple of meetings with the odds for a brisker, 40 bps rate hike being discussed at the latest RBA meeting. The market consensus is for another 25 bps increase, which is likely fully priced into the market. More aggressive rhetoric on part of the RBA is to be watched out for, but the odds for a surprise are rather small, since the Australian housing market remains to be one of the most inflated in the world and the banking system in Australia is vulnerable to higher rates.
 

ECB to Shift to Hawkish Mode at its Meeting

 
The euro has been getting a boost from more hawkish rhetoric on part of ECB officials over recent weeks. The market has fully priced in at least two 25 bps rate hikes in July and September. Traders will be paying close attention for any signals from Mrs Lagarde about 50 basis points rate hikes, since relentlessly rising inflationary pressures are threatening political stability across the Eurozone.
 

Oil Remains Key Driver of Inflation

 
While central bankers continue to reiterate that they have no control over oil prices, increasingly high interest rates at some point are likely to hit general demand. With the rally in oil continuing last week, the expectations for an inflation peak due to base effects (i.e. already high prices a year ago) could be trashed on Friday with the U.S. releasing the latest CPI figure. A higher number, and particularly a high month-on-month increase could tank stocks and boost the US dollar, where traders are closely watching the CPI print to assess future Fed rate hike probabilities.