Interest rate decisions and US employment report to move the markets

As we exit May, a hot June seems to be awaiting the markets. Next week we expect that there will be further developments in the US-Sino relationships, which could create substantial volatility for the markets. On the monetary front, RBA’s, BoC’s and ECB’s interest rate decision are to some of the main events, while a moratorium is expected to quiet Fed members, ahead of the bank’s rate decision on the 10th of June. Also, a number of financial releases are expected to rock the markets, as we have a busy week ahead with the crown being placed on the US employment report for May, on Friday.

USD – US employment report in focus

The US-Sino relationships are getting into more tensions after China’s parliament ratified the new security legislation affecting Hong Kong. The US response is much awaited, and US President Trump announced a press conference for China later today. Given the US President’s unpredictable character, the pressure to deliver a strong response and the severity of the issue, we could see substantial developments possibly shaking the markets and creating safe-haven flows. Characteristically, analysts tended to note that they do not rule out a severe disruption of US-Sino relationships. It should be noted that yesterday US Secretary of State Mike Pompeo had allready stated that Hong Kong could no longer be considered to have “a high degree of autonomy” from mainland China. Such a switch in Hong Kong’s status could entail that US sanctions and tariffs that apply to mainland China, could now also apply to Hong Kong, destabilizing its economy and its function as a financial hub. Any reaction of the Chinese side in the coming week, could have similar effects on the market. All is expected to be quiet on the monetary front as Fed members are to cease statements ahead of the Fed’s decision on the 10th of June. Nevertheless, Fed Chairman Powell’s statements later today could create some volatility foreshadowing what is to come. As for financial releases, we tend to note on Monday the ISM manufacturing PMI for May, while on Wednesday we get the ISM non-manufacturing PMI, the ADP national employment, both for May and the factory orders for April. On Thursday, we get the US trade balance for April, the weekly initial jobless claims figure, while on Friday, we get the star of the week, which is to be the US employment report for May, with its NFP figure.

EUR – ECB’s interest rate decision in focus

The common currency tended to get substantial support from the stimulus plans announced from the EU (€750 billion) for the Eurozone and from the German government (€50-100 billion) for the German economy. Both plans have not been approved yet, hence negotiations are underway and any headlines next week about the matter, could create volatility for the common currency. EUR traders could be eyeing ECB’s interest rate decision on Thursday, especially after the recent statements by ECB officials. Characteristic of the ECB’s dovishness would be Lagarde’s comments like Europe faces “unheard of” economic crisis during peace time and that Eurozone’s GDP will likely fall 8% to 12% this year. Currently the bank is expected to maintain the refinancing rate at 0.0%, with EUROIS implying a probability of 88.0% for such a scenario to materialise. We concur with that possibility currently, yet at the same time we also expect the bank top maintain a clearly dovish tone, in line with the bank’s supportive role for Eurozone’s economy. It should be noted that the ruling of the German Constitutional court for more scrutiny in the bank’s QE program, seems to leave it unaffected in its intentions. As for financial releases, besides the final readings of the area’s PMIs for May scattered through the week, we have noted four. On Wednesday we get Germany’s employment data for May and Eurozone’s unemployment rate for April. On Thursday, we get Eurozone’s retail sales growth rate for April and on Friday Germany’s industrial orders for April.

AUD – Zooming in RBA’s interest rate decision and financial releases

On the fundamental side the Aussie seems to be caught between two conflicting currents. On the one hand we have the reopening of the economies in various parts of the world which tends to provide support for the commodity currency and seems to be dominant in the pair’s direction against the USD. On the other hand, a possible escalation of the tensions in the US-Sino relationships tend to pose seveeral threats. Also it should be noted that Australia had experienced similar tensions in its own relationships with China, as the Australian government was in favour of an independent inquiry of the origins of COVID 19. It was characteristic that reports started to surface that China may tighten import rules concerning coal, a major export product of Australia to China. On the monetary front RBA’s interest rate decision on Tuesday is expected to draw substantial attention from Aussie traders, despite the bank widely being expected to remain on hold at +0.25%. It should be noted that currently AUD OIS imply a probability of 95.62% for the bank to remain on hold, yet we also expect the bank to maintain a dovish tone. It is characteristic that RBA Governor Lowe in a statement before a federal parliamentary comittee stated that rates are unlikely to rise for some years and until full employment is back. As for financial releases, Aussie traders are to have a busy schedule ahead, with China’s manufacturing PMI’s released on Sunday (NBS) and on Monday (Caixin), while on Wednesday we get Australia’s GDP rates for Q1 and on Thursday the retail sales growth rate for April.

CAD – BoC’s rate decision and employment data to be the epicenter

The CAD seems to be stabilising after its sharp strengthening mid-week, against the USD. Oil prices are expected to continue to be a big influencer for CAD’s price action, yet next week, may be different for CAD traders. Definitely it will be different for the BoC as governor Poloz is to step down on the 2nd of June and Tiff Macklem takes over the next day. It should be noted that the bank is to release an interest rate decision on the 3rd of June and the market widely expects the bank to remain on hold at +0.25%. Characteristically the market seems to price such a scenario by 95.62% currently, as per CAD OIS. Should the bank actually remain on hold as forecasted, we could see the market’s attention turning to the accompanying statement and any comments by the new governor. We could see the bank maintaining a supportive tone for the economy of Canada as it was foreshadowed in Poloz’s multiple statements in the past week. As for financial releases, we highlight the release of Canada’s international trade data for April on Wednesday while on Friday, we get Canada’s employment data for May as well as the Ivey PMI for the same month.

GBP – Brexit headlines to dominate

The pound seems poised to end the week higher against the USD, despite some weakening during today’s European session. The latest headlines about a possible easing of EU’s stance in the Brexit negotiations tended to provide hope to GBP traders. Specifically, Reuters stated, that the EU is willing to shift its stance on fisheries in the upcoming negotiations. This could be a major concession on EU’s part in the EU-UK negotiations about their future relationship. Hence, we expect the upcoming round of negotiations to create considerable headlines. Should a new dead-end or little progress be reported, we could see Brexit uncertainty weighing on the pound and vice versa. On the monetary front, the possibility of the BoE employing negative rates is still looming over the pound, yet currently the market does not price in such a possibility to be realised in the next 12 months. However, BoE’s member Saunder’s statement yesterday was quite interesting as he noted that it would be safer for the bank ease too much rather than ease too little. As for financial releases for pound traders, we note on Tuesday the nationwide house prices for May, the final PMI readings for May on Monday (Manufacturing), Wednesday (Services) and Thursday (Construction), while on Friday during the Asian session we get the GfK consumer confidence for June.

Clause de non-responsabilité :

Ces informations ne doivent pas être considérées comme un conseil ou une recommandation d'investissement, mais uniquement comme une communication marketing. IronFX n'est pas responsable des données ou informations fournies par des tiers référencés, ou en lien hypertexte, dans cette communication.

Partager: