Fundamental analysis and market sentiment
The key story last week was weaker-than-expected US CPI data, which unexpectedly fell from an annualized rate of 3.4% to 3.3% after month-on-month data showed no inflation. This was quickly followed by a policy meeting at the US Federal Reserve, which took a more dovish tone on inflation and rate cuts, leaving markets still waiting for just one rate cut in 2024, likely at the Fed’s September meeting. The Fed left rates unchanged as almost universally expected. The US dollar regained much of the ground it lost following the fall in CPI data following the Fed’s message, but major US stock market indices continued to rally to new record highs for the remainder of last week.
Another key event last week was the surprise call for a general election in France following the far-right’s victory in the European Parliament elections. This is a huge gamble by President Macron who has little to lose without a majority in the French parliament, as polls suggest he is likely to bring the far-right to power in France for the first time since 1944. Although the main far-right party no longer supports leaving the European Union, the Euro lost ground last week on this political development, and continues to look weak.
The Bank of Japan held a policy meeting where it said it would begin to reduce bond purchases, but not until next month, which caused the yen to weaken slightly. The policy rate was left unchanged as expected at 0.10%.
Other important data releases last week were:
- The US PPI came in significantly lower than expected, showing a monthly decline of 0.2% when a rise of 0.1% was expected. This is a strong indication that inflation in the US is indeed declining.
- UK GDP – exactly as expected.
- Preliminary UoM US Consumer Sentiment – Weaker Than Expected, as seen in US consumer data lately.
- US jobless claims – slightly worse than expected.
- Change in UK claimant count: worse than expected.
- Australian unemployment rate: exactly as expected.
The Week Ahead: June 17-21
The highlight of next week will be the release of UK CPI data, which is expected to show annualised inflation falling from 2.21TP3Q to 2.01TP3Q, eventually hitting the Bank of England’s target. Central bank meetings at the Bank of England, the Swiss National Bank and the Reserve Bank of Australia will also be held this week. None of these three central banks are expected to make any changes to their interest rates.
Other important data releases expected this week include:
- US retail sales
- US, German, UK and French Manufacturing and Services Flash PMI
- US Empire State Manufacturing Index
- New Zealand GDP
- UK retail sales
- Unemployment claims in the United States
Wednesday is a holiday in the United States.
Credit by DailyForex.com
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