Global markets begin the new week against the backdrop of key macroeconomic developments and fading, yet still palpable, geopolitical tensions. Investors across all markets hope that the ceasefire between the US and Iran will prove durable, which has already partially calmed market sentiment. The previous week brought a consolidation of levels on US indices, while this week this optimism will be tested by key US labor market data (NFP), Eurozone inflation readings, and corporate earnings from tech leaders. In light of these events, investors should pay close attention to EURUSD, US500, and Gold (GOLD).
EURUSD
This week will bring fundamental data crucial for both the European Central Bank and the Federal Reserve. The macro calendar for both the US and European economies is highly packed, as is typical at the beginning of a new month. On Tuesday, we will get the preliminary Eurozone CPI inflation estimate for May. Forecasts expect the HICP indicator to accelerate to 3.2% y/y (up from 3.0% in April) and core inflation to rise to 2.3%. However, it is worth noting that preliminary readings from individual economies came in significantly lower than expected, which was tied to a major late-stage pullback in crude oil prices in May. If Eurozone inflation drops unexpectedly, the market will start doubting the almost certain interest rate hike in the Eurozone, which is currently fully priced in.
Across the Atlantic, a series of readings will be crucial: Monday's manufacturing ISM (expected to rise to 53.0), Tuesday's JOLTS report, and Friday's monthly labor market report (NFP). Forecasts project a solid employment gain of 95k jobs and the unemployment rate holding steady at 4.3%. If the US labor market confirms its structural resilience and European inflation surprises in either direction, volatility on EURUSD could spike. Ultimately, however, the main price driver for the pair remains the situation in the Middle East.
US500
The broad US market index has been hitting new historic highs almost daily, even despite a shortened previous week on Wall Street. It appears that investors have treated the geopolitical risks related to the blockade of the Strait of Hormuz as practically resolved and are fully focusing on hard economic data, developments regarding key tech companies, and the upcoming largest IPO in history—Elon Musk's SpaceX.
From a macro calendar perspective, labor market data and economic activity indices (Manufacturing ISM on Monday and Services ISM on Wednesday) will be important to show whether the US economy is indeed maintaining its high momentum, thereby supporting high equity valuations.
But that's not all, as we face an extension of the earnings season. More importantly, key tech companies will be presenting their reports. This week, financial results will be published by tech giants of immense significance to the index: Broadcom, CrowdStrike, Hewlett Packard Enterprise (HPE), and Palo Alto Networks. Driven by the AI revolution and spending on network infrastructure, the tech sector dictates market conditions. Historically, even minor disappointments in guidance from companies tied to the chip sector have triggered massive corrections. With the US500 currently at record levels, the margin of error for reporting companies is minimal.
Gold (GOLD)
Gold enters the new month from a slightly weaker position. We have seen three consecutive months of declines, though investors have managed to bounce the price off more than two-month lows. Gold is currently highly sensitive to US interest rate expectations once again, so much like the dollar, it will react to economic activity and labor market data. If job growth is solid, it could signal the US economy's readiness for rate hikes. On the other hand, labor market weaknesses could indicate potential for cuts if the situation in the Middle East is resolved quickly. However, it is worth noting that a huge unknown remains the communication from Kevin Warsh, who will hold his first press conference as Fed Chair only in the second half of June. Currently, the market prices in a 60% probability of one rate hike by the end of this year, but nearly one full hike by mid-next year. An absence of inflation issues will mean no prospects for hikes and support for the precious metals market.
The precious metal enters this week in a state of heightened sensitivity to US interest rates and Treasury yields, while simultaneously reacting to the calming of political sentiments.
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