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Weekly Outlook 2024.06.10-2024.06.14

Weekly Outlook 2024.06.10-2024.06.14


Dramatic Reversal in Global Financial Markets Last Week


Last week, the global financial markets witnessed a dramatic reversal as an election black swan triggered alarms. Various US economic data validated a cooling labor market, bringing the possibility of a September rate cut back into view, creating a near-frenzied state of risk sentiment. Global stock markets hit successive record highs, but Friday's unexpected "explosive" non-farm payroll report caused a dramatic turnaround. The dollar soared, gold plummeted by $100 in a collapse, and oil prices fell significantly.


In earlier major events such as Brexit and Trump's election, polls were able to predict the outcomes successfully. However, with the rise of populism and nationalism, the boundary between politics and the market is increasingly blurred. The situation and market expectations are very important, but what truly matters is focusing on tail risks, external risks, and how these possibilities may play out. We will see more of this in the upcoming US and UK elections.


Last week, an "election black swan" suddenly appeared, from Mexico to India, where unreliable polls caused the market to collapse instantly, and the unexpected election results frightened traders. On Monday, the Mexican election results led to a triple whammy of declines in stocks, forex, and bonds. The next day, India's stock market also suffered a heavy blow due to Modi's election advantage falling short of expectations, resulting in the largest drop in at least four years.


The five-year European Parliament elections began voting on June 6 (Thursday). Analysts believe the results of this election will be an important barometer of political tendencies. Additionally, the UK will hold a general election on July 4, with the latest polls showing the opposition Labour Party likely to achieve an overwhelming victory.


In terms of financial market performance, last Friday (June 7), the overall better-than-expected US non-farm employment report led investors to adjust their future rate cut expectations. Wall Street stocks fell slightly, but major US stock indices collectively rebounded over the week. The Dow Jones Industrial Average rose 0.18%, closing at 38,795.00 points; the S&P 500 index rose 1.14% for the week, closing at 5,355.75 points; the Nasdaq Composite Index closed at 17,133.12 points. After reaching historical highs, European stocks pulled back.


After the rise in non-farm employment data last Friday, the US dollar index rose nearly 0.8% to just below 105.00, a one-month high. A July rate cut is unlikely. Based on last week's data, the possibility of a September rate cut is decreasing, and the US dollar index is expected to continue rising. With the labor market remaining strong, the market expects the Fed to maintain the benchmark interest rate unchanged at next week's policy meeting, resulting in the dollar rising for the third consecutive week.


Before the release of the US non-farm payroll report, gold was suddenly hit by the People's Bank of China—around 4 pm Hong Kong time on Friday, the PBOC stated that its gold holdings remained unchanged at the end of May. Following this announcement, spot gold prices fell by 1.5%. Subsequently, the unexpectedly strong US employment report further pushed gold prices down, with gold quickly losing the 2300 support level, briefly reaching around 2387, with an intraday swing of over 100 points. Spot silver also plummeted by 6.85% last week to a low of $29.119, marking the largest single-day drop in five years.


Last week, investors weighed whether OPEC+'s assurances would be realized, while the latest US employment data lowered expectations of an imminent Fed rate cut, leading to a third consecutive week of declines. WTI crude closed at $75.50 per barrel, down over 1.81% for the week. Brent crude futures settled at $79.62 per barrel, down 2.5% for the week.


With the help of further significant purchases by spot ETFs, Bitcoin is approaching the critical $72,000 level. Over the past two trading days alone, spot ETF providers purchased approximately $1.37 billion worth of Bitcoin, dwarfing the current daily mining volume of 450 Bitcoins. However, Bitcoin is struggling to break through the critical $72,000 level and remains in a positive trend. If the May 21 high is breached and sustained, a new all-time high is likely.


**Weekly Outlook:**


This week, the global financial markets are set to experience a series of significant events that will deeply influence market sentiment and asset prices. Investors and traders will closely watch key events such as the Federal Reserve and Bank of Japan meetings, the European Parliament elections, US inflation data, and UK employment data. Here is a forward-looking analysis of these events.


Key Events This Week:


1. **FOMC Meeting (Wednesday):**

   - The main event this week will be the Federal Open Market Committee (FOMC) meeting on Wednesday. The widespread consensus and market expectation is that there will be no change in monetary policy.

   - The median rate forecast on the latest "dot plot" might be adjusted higher, suggesting only two rate cuts this year instead of three. Nonetheless, Federal Reserve Chair Jerome Powell is expected to signal a dovish stance, dismissing questions about further rate hikes.


2. **US May Inflation Data:**

   - The release of the US May inflation data will further influence market expectations regarding rate cuts. If inflation data shows further deceleration, it could solidify market expectations for the Fed to ease monetary policy this year, with even the possibility of a July rate cut.

   - Conversely, if inflation data significantly underperforms expectations, it might trigger market fears of an economic recession.


3. **Bank of Japan Meeting (Friday):**

   - The Bank of Japan will conclude its monetary policy meeting on Friday. While no rate changes are expected, the market does anticipate signals indicating a reduction in bond purchases, marking the next natural step after Japan's exit from the yield curve control policy in March. The yen may revisit its previous low of 160.20.


4. **UK Data:**

   - The British pound is likely to be in focus with the release of the UK employment report and the April monthly GDP data on Tuesday and Wednesday, respectively. The higher-than-expected inflation in April, especially the persistent core price pressures, has reduced expectations of a Bank of England rate cut.

   - If GDP data confirms robust performance in the UK economy at the start of Q2, the likelihood of a September rate cut may diminish, thereby boosting the pound. However, with the July 4 election approaching, pound traders may remain cautious.


5. **Chinese CPI and PPI Data (Wednesday):**

   - China's Consumer Price Index (CPI) and Producer Price Index (PPI) data are scheduled for release on Wednesday.

   - Australia's employment report is due on Thursday. A rebound in Australian employment coupled with higher-than-expected Chinese inflation could support the Australian dollar, as investors become more confident that the Reserve Bank of Australia is unlikely to cut rates this year.


6. **European Parliament Elections (Sunday):**

   - Sunday marks the final day of the European Parliament elections. While the results may not have a major impact on financial markets, a surge in right-wing support could make it more challenging for lawmakers to reach agreements and push for reforms and policies that grant more power to the EU, potentially exerting some pressure on the euro.


In summary, this week presents a multitude of critical events that could significantly sway market dynamics. Investors and traders should stay vigilant and be prepared for potential volatility as these events unfold.



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