English
پارسی
In the week ahead, Europe will focus on EZ CPI inflation numbers, while in Asia and China, PMI data will be a game changer. In the US, market participants want to see how the labor market performs in May. In the UK, the General Election must be watched closely to see if the Labour Party can once again take control of No. 10 Downing Street.
The Week Ahead:
United States:
Construction Spending (Mon.)
ISM Manufacturing (Mon.)
JOLTs (Tue.)
FOMC Meeting Minutes (Wed.)
Employment (Fri.)
Outside the US:
China PMIs (Sun. & Thur.)
Japan Tankan Survey (Wed.)
Eurozone Service and Manufacturing PMIs. (Mon. & Wed.)
Eurozone CPI & Unemployment (Tue.)
Wall Street
Recently published data such as consumer confidence, GDP, durable goods orders, and housing market numbers confirm a challenging environment for the US economy and stock markets to continue the recent trends, which have seen significant gains driven by a small number of large-cap stocks.
While most stocks have increased so far this year, the largest 20 US stocks gained about 27% year-to-date (YTD), driving these trends. It's important to note that these stocks account for 65% of the S&P 500's gains over the past year and 75% YTD, according to JPMorgan's report. Therefore, the bull run, characterized by narrow leadership and extreme momentum crowding, does not support a broadening of growth across the markets.
The FOMC has left the funds rate unchanged for almost a year, and we are now seeing the effects in the release of economic numbers. However, this downside in economic activities has resulted in significant progress in bringing inflation back down to 2%, as recently published PCE data indicate.
While Friday's data confirmed lower inflation, it also showed significant growth in incomes, which raises questions about further reductions in inflation. In the week ahead, we will have very important data, especially from the labor market, that can provide more clarity.
ISM Manufacturing and Services PMIs: The ISM Manufacturing and Services PMIs are scheduled to be published on Monday and Wednesday, respectively. In May, the manufacturing PMI fell for the second month in a row to 48.7. While the market expects a slight increase to 49.0, it remains below the expansionary threshold of 50.0, reflecting the impact of fewer factory orders and durable goods orders. Market uncertainty, higher risk, and the effects of prolonged higher interest rates are affecting the production sector.
For the service sector, which we will have data for on Wednesday, we estimate the ISM Services Index to fall slightly in June to 52.5, but unlike the production sector, it will remain firmly in expansion territory. In May, the ISM Services Index reached 53.8, marking the highest monthly jump in 16 months. A strong service sector with increasing incomes is a primary concern for the Fed in its efforts to lower inflation.
Labor Data: JOLTs will be released on Tuesday and Nonfarm Payrolls on Friday. Labor data will be a focal point this week, especially following last week's PCE data release.
JOLTs Job Openings: U.S. JOLTs Job Openings have been clearly decreasing but are still above pre-pandemic levels. In April, they fell to 8.059 million from 8.355 million in March. We expect a similar number of around 8 million for the upcoming report.
Nonfarm Payrolls: On the Nonfarm Payrolls (NFP) front, coupled with low claims for unemployment benefits, we anticipate more hiring. Nonfarm payrolls rose by 272,000 in May, nearly 100,000 more than forecasted, primarily supported by the service sector. As we expect slowdowns in the service sector in the coming months, hiring may follow the recent decrease in JOLTs. In the last Fed meeting, policymakers also increased their unemployment expectations for 2024 and 2025. We expect slightly lower figures for June, with 200,000 added payrolls, while the unemployment rate remains unchanged at 4% and average hourly earnings increase by 0.3% over the month.
Overall, the expected data may not be optimistic, potentially affecting the stock markets negatively. Friday's downturn in the stock markets may continue this week, indicating the beginning of a new trend.
Technical Analysis:
From a technical perspective, falling below 5,440 could open the door for deeper levels, as indicated by the RSI and OBV.
US Dollar:
Despite Friday's slight decrease, the dollar remained steady at the end of the week, closing at around 105.9. US Treasury yields are increasing, supporting the dollar's demand, with the US 10-year bond yielding 4.402%.
US GDP data for the first quarter showed the economy expanded by 1.4%, in line with expectations and just above the initial estimate of 1.3%. Durable Goods Orders in May rose by only 0.1% versus forecasts of a 0.5% contraction. However, Core Durable Goods Orders, excluding transportation items, dropped by 0.1% in May, falling short of estimates of 0.2% growth and lagging behind April’s 0.4% increase. This aligns with the CB consumer confidence data published earlier in the week, indicating decreasing spending. Consumer Spending increased only 1.5% in May, significantly lower than the 3.0% increase in April.
The CB Consumer Confidence Index in June exceeded expectations with a print of 100.4 versus the anticipated 100.0, indicating financial confidence and serving as a leading indicator of consumer spending. However, Tuesday’s data showed a decline in US Consumer Confidence to 100.4 in June from 101.3 in May.
FOMC and Rate Cut Expectations:
Hawkish comments from FOMC policymakers followed the recent Fed meeting. The upcoming FOMC meeting minutes may provide clearer insights into their thoughts on the rate cut path for the rest of the year. Odds of a rate cut in September are currently below 70%, while a rate cut in November remains under question, which supports the USD. The uncertainty around Fed rate expectations is likely to continue, causing volatility in forex markets and sustaining USD demand.
The Fed’s latest dot plot, updated in June, considers recent inflation and economic data, providing estimates of the Fed’s interest rate outlook. Fed officials expect to cut interest rates only once in 2024.
US PCE data for May indicated that disinflation is finally progressing, confirming the previous week's CPI data. However, policymakers need more evidence before making further decisions.
USD Movement: USD movement in the upcoming week depends on Friday's labor market data. With stock markets under pressure and higher global risk increasing the USD's safe-haven demand, significant falls in its rate are unlikely, though much higher levels are also hard to reach for now.
Technical Analysis: The US Dollar Index remains in a clear uptrend. The first support is at 105.65. Holding above this level puts 106.50 in focus. Falling below S1 could lead to S2 at 105.20, and then to 104.70, which is the key pivot point for now.
EUR
The euro remains under pressure for several reasons. As the June 30 election day approaches, the latest polls show Marine Le Pen’s far-right party in the lead. However, it is unlikely for Le Pen’s National Rally Party to win the outright majority required to form a government, increasing concerns about political instability in France and dragging the euro down.
Data Front: Overall economic conditions are not favorable for the Eurozone. The German IFO Business Climate Index dropped to 88.6 in June from 89.3 in May, missing expectations of 89.4. Meanwhile, inflation increased in May, as expected. Headline inflation in the Eurozone rose by 2.6% year-on-year in May, up from 2.4% in April, exceeding the forecast of 2.5%. Core CPI, which excludes volatile food and energy prices, rose by 2.9% annually in May from 2.7% in April, also above estimates of 2.7%. Inflationary pressures in the Eurozone are not easing as fast as anticipated, which might delay the ECB’s plans to lower interest rates. GDP data also missed estimates, with only 0.3% growth in the first quarter, in line with preliminary estimates.
The ECB lowered its Main Refinancing Rate by 25 basis points to 4.25% in June. Given the current data, policymakers in the ECB might hold rates in the upcoming meeting in July and consider cutting rates at the September policy meeting.
EUR/USD Technical Analysis:
EUR/USD surged above the 1.072 level on Friday but then pared some of the day’s gains, closing at 1.0714, which was the first support at the beginning of the week. The overall bearish trend remains unchanged, with the next supports at 1.056 and then 1.0520.
Gold
As the dollar remains strong, with the US Dollar Index hovering around 105.9 and US Treasury yields increasing, with the US 10-year bond yielding 4.402%, gold demand is lowering. However, ongoing geopolitical tensions and smart money moving out of stock markets help maintain demand for the yellow metal.
Israel threatens to declare an all-out war with Hezbollah (Lebanon), further destabilizing the region. There is still no clear resolution to the war situation in Ukraine. In addition, the upcoming elections in Iran, France, and the UK add to the uncertainty. The election atmosphere in the US has also become tense after the first debate. These factors increase the need for a safe haven, supporting gold demand.
Technical Analysis:
Gold prices were steady this week, holding its 38.2% Fibonacci level as the first support. Technically, gold remains bullish with 2,350 as the first target, and then it could move towards the 2,400 area.
Oil
While US crude oil inventories released on Wednesday showed a surprise build in US crude stockpiles, overall geopolitical tensions and supply concerns in the Middle East outweighed the build in US stockpiles.
The US Energy Information Administration's weekly report on Wednesday indicated that US crude stocks rose by 3.6 million barrels for the week ending June 21st. This was contrary to market expectations of a 2.6 million barrel draw, following a 2.5 million barrel draw the previous week.
Geopolitical and Seasonal Factors:
Geopolitical Tensions: Geopolitical tensions in the Middle East continue to support oil prices despite the rise in US stockpiles.
Seasonal Demand: The seasonal increase in oil demand during the summer months is also propping up oil prices.
OPEC+ Production Cuts: OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC announced plans to gradually phase out oil production cuts and restore production levels within 2025.
Economic Concerns: Overall economic data are not so optimistic and could lower the demand outlook, particularly for the fall season. This potential demand reduction could pressure future prices, affect spot contracts, and limit bullish momentum.
Technical Analysis:
Oil prices remain bullish on the technical charts. If oil prices drop, they may find support near $78.60 per barrel, while resistance may be encountered near $84.70 per barrel.
Cryptocurrency
Recent declines in AI-powered stock and overall tech stocks have added pressure on cryptocurrency prices, supporting the bearish trend of Bitcoin (BTC), which has persisted since the beginning of the month. BTC fell below its key support at $62,000, and if it does not recover above this level, we could see further declines to $57,000 and $52,000.
Market Influences:
The fall in tech stocks, particularly AI-powered stocks, has spilled over into the cryptocurrency market, exacerbating the bearish sentiment. Also, June has been filled with negative news for Bitcoin, most notably a massive sell-off by miners. In addition, Uncertainty surrounding the Fed's policy path has also weighed heavily on the market, adding to the bearish pressure.
Another reason for the current downtrend is the miner sell-off. The recent sell-off by miners has had a significant negative impact on Bitcoin prices. This sell-off, combined with the uncertainty around the Fed's policies, has exacerbated the short-term negative effects of the recent halving event.
Potential Support Levels:
Key Support Levels: BTC needs to recover above $62,000 to avoid further declines. If it fails to do so, the next support levels are at $57,000 and $52,000.
Buy Orders: Market participants expect increased buy orders around the $47,000 to $50,000 area, which could provide some support and potentially stabilize prices.
Comments