Financial Markets’ Weekly Recap: June 12-16

The macroeconomics situation of the US has generally improved better than anticipated and is likely to improve further. This is expected to reduce upward support on the dollar’s value.

Although the June FOMC meeting gave the impression that hawkish policymakers were taking a break by raising the terminal rate for this year from 5.1% to 5.6%, market sentiment showed some kind of opposition probably due to the quickly falling inflation rate.

A robust stock market increases the possibility that inflation will remain high for a longer length of time, which may alarm the Fed. The Fed speakers are likely to employ more negative tone, which could prevent currency selling. Moves are expected to continue to be made above the three-month swing low of 101 and below 103. The Dollar Index (DXY) is displaying 102.299 at the time of writing.

FOMC Meeting, US Dollar Performance

The Federal Funds rate was held in June at 5.00%-5.25%, following the 0.25% hike in May. The next meeting is on Wednesday the 26th of Jul. Fed’s hiking cycle and now pause has progressed as anticipated and is not expected to rise much further, even if the Fed suggests it might. This is likely to lead to stabilized treasury bond yields which could limit their appeal to investors. This is expected to reduce upward support on the dollar’s value.

CPI for May
On Tuesday, CPI in the US for May significantly slowed to 4.0% annual inflation from 4.9% in April. The June report is due on Wednesday the 12th of July. CPI has fallen slightly faster than anticipated and is expected to fall much further. This is likely to lead to stabilized interest rates and a shift in investor preference away from safer assets, such as government bonds. This is expected to apply downward pressure on the dollar’s value.

Labour Report for May
Unemployment in the US for May is 3.7% which is much higher than the 3.4% in April. The June report is due on Friday the 7th of July. The labour market is a contradiction as both employment and unemployment rates rise. This is likely to lead to reduced growth and a shift in investor preference towards safer assets, such as government bonds. This is expected to apply upward support on the dollar’s value.

ECB, BoJ

The EUR/JPY pair has continued its four-day winning streak after climbing above Thursday’s high at 153.69. The Bank of Japan (BoJ) has continued its ultra-dovish policy stance and the European Central Bank (ECB) has raised interest rates by 25 basis points (bps) to 4%.

The International Monetary Fund (IMF) has urged nations to cut fiscal spending for increasing the efficiency of the monetary policy by the ECB. On the Eurozone’s economic front, Q1 Labor Cost has jumped to 5.0% vs. the estimates of 3.3% but lower than the prior release of 5.6%.

The Japanese Yen is facing an immense sell-off as the Bank of Japan (BoJ) didn’t alter its interest rate policy to keep the momentum of monetary stimulus intact. BoJ Governor Kazuo Ueda conveyed that inflationary pressures in Japan are driven by higher cost and external factors and a steady 2% inflation demands support from higher wages and domestic demand.

Gold
Gold dropped from a high of $1,967 on Friday’s US session and cleaned up the prior session’s length, creating a fresh low of the day down at $1,953.32. The focus has been on the Fed which issued a hawkish outlook for interest rates on Wednesday even as it ended its two-day meeting without hiking rates. The Fed forecast 50 basis points of additional increases prior to year-end.


Oil
Oil fluctuated along the trading week, the price of Brent crude ended the week at $74.79 after closing the previous week at $76.401. Reuters reported that oil prices fell by around $3 a barrel on Monday after analysts highlighted rising global supplies and concerns about demand growth just ahead of key inflation data.

On Friday, however, oil surged and posted a weekly gain, as higher Chinese demand and OPEC+ supply cuts lifted prices. Brent crude gained 94 cents to settle at $76.61 a barrel, while US West Texas Intermediate (WTI) crude rose $1.16 to $71.78. Brent posted a weekly gain of 2.4% and WTI rose 2.3%. Russian Energy Minister Nikolai Shulginov said it was “realistic” to reach oil prices of around $80 per barrel. In Iran, crude exports and oil output have hit new highs in 2023 despite US sanctions.

US oil rigs fell by four to 552 this week, while gas rigs fell by five to 130. Capping oil price gains was the prospect of rising interest rates, which could slow economic growth. Money managers cut their net long US crude futures and options positions by 13,191 contracts to 73,273 in the week to June 13.

Stocks
the European stock markets were up on June 16. The Euronext 100 was up by 0.75%, the CAC 40 was up by 1.34%, the DAX was up by 0.41%, and the Swiss Market Index was up by 1.01%.

US stocks celebrated the FOMC decision on Wednesday and have kept upbeat performance and sentiment since the rate pause decision, but fell on Friday as Wall Street wrapped up a busy week that saw investors receive a Federal Reserve pause on rate hikes as well as positive inflation data. The Dow Jones Industrial Average dropped 108.94 points, or 0.32%, to settle at 34,299.12 and the S&P 500 dipped 0.37 percent to close at 4,409.59. The Nasdaq Composite decreased 0.68% to close at 13,689.57.

China-US Trade War
The trade war is having a detrimental effect on the global and US economy by causing higher prices for consumers, increased uncertainty for businesses, disrupted supply chains, job losses and is impacting economic growth. This is expected to apply upward support on the dollar’s value.


What To Watch In The New Trading Week?

Following are the events to keep an eye on:

Monday, June 19: National Holiday Juneteenth

Tuesday, June 20: FOMC Member Williams Speaks historically neutral regarding rates

Wednesday, June 21: Fed Chair Powell Testifies historically neutral regarding rates. FOMC Member Goolsbee Speaks historically dovish regarding rates

Thursday, June 22: Fed Chair Powell Testifies historically neutral regarding rates

Friday, June 23: Services, Manufacturing PMI’s