Week of 22 JUNE

A busy economic calendar was overshadowed by geopolitics as the US-Iran deal was finally signed, helping restore some optimism after the Fed was more hawkish than anticipated and the BOE delivered a dovish surprise. Brent started the week at $84 after Trump announced over the weekend that a ceasefire deal had been reached, and fell to $76 after it was signed early on Wednesday. However, delays in further progress saw Brent head back above $80 towards the end of the week. 

A much calmer week ahead on the economic front, including US PCE and select flash PMIs, which could be overshadowed by the implementation of the deal to open the Strait of Hormuz.

Week in Review

The week started with reactions to SpaceX's historic IPO and the announcement that the US had reached a tentative ceasefire agreement with Iran that would reopen the Strait of Hormuz. This led to a surge in equities worldwide, with the DJIA breaking above 52K for the first time ever, though the index fell later in the week. The positive sentiment was tempered by growing concerns that the deal would fall through, which were not completely dispelled when the deal was signed on Wednesday. An expected high-level meeting between US and Iranian representatives on Friday was postponed as tensions between Israel and Hezbollah increased, threatening to end the peace accord. Crude prices also found support, as analysts expected it would take weeks for the market to stabilise, even if the deal holds, after US SPR levels fell to their lowest level since 1983. The dollar surged towards the end of the week following several rate decisions, with the Fed's decision the most important.

The FOMC's first meeting under Chair Kevin Warsh was more hawkish than anticipated, and markets upped the odds of a rate hike this year to 90% from 70% before the meeting. Warsh cut back on forward guidance, urging the market to focus more on data, which has recently shown inflationary pressure.

The BOE held rates unchanged, with a 7-2 vote and just two hawkish dissenters, after the May CPI was cooler than anticipated. Cable fell towards the 1.3200 handle, and the lowest level since April. Staying in the UK, Andy Burnham won his byelection in Makerfield, and could challenge Kier Starmer for Labour Leadership (and Prime Minister) as soon as next Monday, which further weakened sterling and kept the FTSE on the back foot. The index was heading towards a 0.7% for the week.

The BOJ hiked rates by 25 bps, as widely anticipated, leaving its policy rate at the highest level in 31 years and maintaining hawkish rhetoric amid weakness in the yen. The RBA also matched expectations, keeping rates unchanged and signalling a data-dependent approach.

Overall, market gains relied on resilience in the tech sector, as geopolitics weighed on risk sentiment amid a packed monetary policy calendar, with the Fed's hawkish pivot the highlight of the week.

Biggest Market Movers

• Gold declined sharply after the Fed rate decision amid continued strong ETF outflows, contributing to the Swiss Franc's underperformance during the week.
• CAD declined against the greenback after the BOC kept rates unchanged and was weighed down by a drop in crude oil prices.
• WTI started the week above $80 per barrel, but fell sharply in anticipation of the US-Iran deal, finding a floor around $75.
• The Nikkei was once again the top-performing global index, supported by solid demand for AI infrastructure
• The Stoxx 50 surged following the US-Iran deal, breaking above pre-war levels and scoring a new all-time high.
• Yen weakened despite BOJ hike, with the USDJPY breaking above 161 and nearing its highest level in forty years.

Top Events in The Week Ahead

The coming week could be particularly volatile despite a relatively light economic calendar, as markets may be affected by geopolitical developments. Traders will be closely watching the implementation of the deal to open the Strait of Hormuz, including whether the deal fails. If tensions in Lebanon ease and a date is set for nuclear talks, then markets could become more confident. The UK political outlook will also be in focus after Andy Burnham asked for 72 hours to get settled in as MP before potentially challenging Kier Starmer for leadership on Monday. Markets will take note of the PBOC's policy decision over the weekend to see if new stimulus measures are announced. After the Fed's renewed focus on inflation, the main event of the week could be the upcoming US PCE figures, while commodity currencies could react to progress in releasing oil from the Persian Gulf.

US Inflation Expected to Steady

Thursday's release of US inflation data could receive extra attention after Warsh signalled a greater focus on bringing consumer prices under control. As part of his revamped communication strategy, he's pushing the Fed to focus more on the less closely followed trimmed PCE measures. The May core PCE rate is expected to stay unchanged at 3.3%, but well above the Fed's 2.0% target. At the same time, May durable goods orders are anticipated to fall back to -3.2% from +7.9% in April, signalling the potential slowdown effect of the war. Hotter-than-expected inflation could raise the odds of a rate hike and drag on gold prices, already hurt by the FOMC decision last week. The yellow metal could head for support at the month's low of $4,100, while a rebound would face resistance at $4,400, the high from last week.

Global Services PMI Still on Price Watch

Markets will be paying close attention to the release of flash PMIs on Tuesday for signs of how the situation in the Middle East is impacting the economy. The survey is still being conducted, and the Flash data might not include the effect of the US-Iran deal. However, after the ECB raised rates to pre-emptively address inflation, there will likely be a focus on the price component to assess lingering inflation pressures, particularly in the services sector, that might prompt the ECB to raise rates again. Indications of an economic slowdown could weigh on the shared currency, with EURUSD potentially finding support at the yearly low of 1.1400, while a rebound could encounter resistance at the 1.1600 level seen before the Fed's decision.

Other Events & Earnings

Monday has Canadian CPI data. For Tuesday, the focus will be on various central bank speakers, including BOC's Macklem and ECB's Vujcic. German Ifo business climate data comes out on Wednesday. Thursday includes the US final Q1 GDP reading. Friday sees the University of Michigan Consumer Sentiment.

The coming week sees a relatively light corporate earnings calendar, with highlights including earnings from FedEx, Carnival, Micron, Darden, McCormick, and Babcock.