Week of June 16

A relatively quiet week in terms of economic releases saw US inflation cooler than expected, the UK economy slowing down, and geopolitics taking a turn for the worse.

The week ahead is active with interest rate decisions from the Fed, BOE and BOJ, as well as UK and Japanese inflation figures.

Week in Review

The focus last week shifted to cooling inflation figures in the US, as the CPI ticked up to 2.4% from 2.3%, missing the forecast of 2.5%. The core rate also ticked up a decimal point to 2.8%, which was not deemed enough to change the market's outlook for a September rate cut by the Fed. PPI figures also showed slower growth than economists had predicted, with goods prices showing little in the way of adverse effects from tariffs.

China's trade surplus grew less than expected as imports fell by 3.4% instead of the -1.0% forecast. Meanwhile, Chinese CPI became more deflationary.

Britain's unemployment rate unexpectedly rose, with average earnings decelerating. The impression of a slowing UK economy was supported by the April GDP, which showed a -0.3% contraction instead of the flat reading expected.

The Euro Area trade balance unexpectedly fell to €9.9 billion from €36.8 billion, with industrial production declining at -2.4%, faster than the -1.58% anticipated.

In geopolitics, the Middle East remains a focal point after Israel launched major air strikes against Iranian nuclear facilities and command structures, with Iran accusing the US of involvement and vowing retaliation. Concerns over the possible escalation of the conflict caused risk sentiment to crater on Friday.

The US-China meeting of high-level trade representatives in London at the start of the week left participants sounding optimistic. However, markets were unconvinced, as there seemed to be a lack of concrete steps to resolving the trade dispute. Both sides vowed to continue talks.

Biggest Market Movers

• Crude prices started rising in the middle of the week on rumours of Middle East tensions, with confirmed Israeli airstrikes on Iran on Friday sending WTI ~15% higher.
• Gold reapproached its all-time high as the Iran-Israel conflict drove strong demand for safe havens, up over 3% at the time of writing.
• The buck weakened to its lowest level since early 2022 after falling CPI and rising jobless claims data.
• The EURUSD reached multi-year highs late in the week amid a weaker dollar and geopolitical tensions, adding over 2% at some point during Thursday trading.

Week Ahead

The focus of the coming week will be on central banks, though at least for now, the consensus among analysts is that all three of the significant rate decisions will result in no change.

Central Banks Take Centre Stage

The primary focus will likely be on the FOMC's decision on Wednesday, with analysts scrutinising the release of the updated economic forecasts and the "dot-plot" matrix. Markets are uncertain whether the Fed will cut rates at the July or September meeting, and the estimates could provide valuable insight. Dovish implications could set up gold for a new record high above $3500 an ounce.

The BOJ is expected to keep rates unchanged on Tuesday, as the economy has slowed. However, markets will be interested in whether Governor Kazuo Ueda modifies his rhetoric about pursuing rate hikes when the conditions allow. Meanwhile, the USDJPY pair continues to consolidate between 143 and 145, with a breakout opening the door to the next round levels.

The Swiss National Bank is expected to cut rates as it once again struggles with a strong currency amid safe-haven demand. After testing 0.81, a short-term bounce could lead to the 0.80 handle if bulls fail to reclaim the 50-day moving average near 0.8250.

Data Ahead of BOE Decision

UK inflation comes out just before the BOE announces its likely decision to keep rates unchanged. Markets expect a modest increase in the headline inflation rate to 3.6% from 3.5%, with the core rate unchanged at 3.8%. A significant deviation could upset the market and impact the outlook for the BOE, which is expected to pause before cutting rates in August. With cable shy of a 3-year high achieved on Friday, strength in sterling could expose 1.37 and 1.38. To the downside sits the 1.35 handle, followed by the swing support of 1.3450.

Other Events, Earnings

Chinese industrial production is scheduled to be released on Monday. Tuesday has US retail sales figures. Wednesday includes Japan's trade balance as well as US housing starts. Thursday sees Australian jobs numbers. Japan's inflation data is expected to be released on Friday.

The week has a relatively quiet corporate calendar, with prominent names expected, such as Lennar, Haleon, Accenture, Kroger, and CarMax.