Week of June 23

Last week was busy on both the geopolitical and economic data fronts, with major events such as rate decisions from the FOMC, BOJ, and BOE capturing the attention of investors.

The week ahead is relatively calm, starting with Flash PMIs for key economies, moving to US durable goods, and concluding with the US PCE price index.

Week in Review

Despite a heavy economic calendar last week, risk sentiment was heavily influenced by geopolitics, with the situation in the Middle East taking precedence over concerns about a lack of progress in reaching trade deals. Initial hopes that the conflict might be limited suffered as US President Donald Trump considered whether the US would join Israel's side to destroy Iran's hardened nuclear facilities in Fordow. European and Iranian diplomatic officials meet in Geneva on Friday with hopes of finding a last-minute deal on Iran's nuclear programme. Ahead of the meeting, Iranian authorities threatened to close the Strait of Hormuz to put pressure on American allies.

In the US, the Fed kept rates unchanged, as widely expected, with the "dot-plot" matrix showing two rate cuts expected this year, a forecast that matched what markets had been priced in. Fed Chair Jerome Powell noted that the economy was in a solid position and that near-term inflation expectations had increased recently. US retail sales in May disappointed, coming in at -0.9% instead of the expected -0.6%. Meanwhile, the minutes of the latest BOC meeting suggested that further rate cuts were possible if the economic situation deteriorates.

Across the Atlantic, the BOE's decision to hold rates unchanged by a 6-3 vote (with the dissenters wanting a quarter-point cut) was seen as cautious and in line with the expectation of gradual easing. The market continued to price in a rate cut in August, despite BOE Governor Andrew Bailey clarifying that his comments about rates continuing downward did not imply a cut at the next meeting.

Lastly, the BOJ kept rates unchanged as widely expected and trimmed back its taper of JGB buying by ¥200 billion. Japan's inflation rose to its highest annual rate in two years, at 3.5%, as anticipated by markets.

Biggest Market Movers

• Crude prices rose over 2% on tensions in the Middle East, despite retreating on Friday after Trump gave a 2-week window to decide on joining the conflict, but remained contained within last week’s price range.
• The dollar index gained through the course of the week on safe-haven flows, with commodity currencies weighed down.
• Yen was among the worst-performing major currencies after the BOJ decided to slow the pace of its bond-buying reduction, losing around 1%.

Top Events in the Week Ahead

Geopolitics and trade could overshadow the relatively calm economic calendar this week. Trump has indicated that sometime this week, he might send out unilateral "letters" to countries that haven't completed a trade deal to set new tariff regimes, as the White House looks to wind down the trade war ahead of the 90-day deadline. However, some economic calendar releases may still move markets.

Inflation in the US to Stay Sticky

The US is likely to be the focus, with the Fed's preferred inflation measure, the PCE price index, scheduled for release on Friday. The core rate is expected to rise to an annual pace of 2.6% from 2.5% previously, assuming economists are correct about the cost of tariffs finally filtering through to consumers. Another check on the health of the US economy comes a day earlier, with the release of durable goods, which are expected to show a recovery to 0.2% growth from -6.3% reported a month ago. Positive data in the US could further weigh on gold, with support below $3300 an ounce sitting near $3250, while resistance lies at $3450 and $3500.

Preliminary PMIs and Inflation

The release of flash PMIs for Europe on Monday will gain attention as the ECB signalled it is winding down its easing cycle, with the shared economy still in the doldrums but showing some fledgling signs of recovery. Stronger PMI performance could provide the euro with some support, as traders wonder if the central bank will be forced to return to easing if the economy doesn't pick up quickly enough.  Positive data could send the eurodollar to fresh multi-year highs above 1.1633, opening the door to 1.1700. To the downside, support can be seen at 1.1400, followed by 1.1350. Meanwhile, France will also announce its preliminary CPI for June on Friday, a precursor to the Euro Area figure, which is expected to be released next week and to increase to 0.9% from 0.7% in May.

Other Events, Earnings

Monday sees the release of the US existing home sales figures. For Tuesday, German Ifo business climate data is expected. The BOJ's summary of opinions comes out on Wednesday. Thursday has the final US Q1 GDP numbers. Friday includes Japan retail sales and the University of Michigan consumer sentiment index.