Reflecting on the past week
Last week, we saw a breakout in a few markets, as US10Y broke above 3.6% level discussed in previously - paving the way for more Dollar strength. The DXY currently remains above 103.
S&P500 also created a new YTD high breaking above 4175.
What to expect this week
This week, all eyes will be on the ongoing Debt Ceiling fiasco in the US. Talks did breakdown on Friday, but we know this is the standard usual process for negotiation from both parties.
On another note, Flash PMI data for EU, UK & US remain the main focus on Tuesday.
Wednesday holds significant awaited events:
The RBNZ is coming back on the table, with the markets forecasting a 25bps hike.
This leaves market wondering - could they surprise the market with a more hawkish 50bps?
- The CPI print from the UK is also closely watched.
The market is forecasting a decent drop with energy prices decreasing, as consumption drops while entering summer months.
Moving through the week, we come back to the US for Unemployment claims & GDP q/q on Thursday, followed by Core PCE Prince Index m/m data coming out on Friday.
This week will be major for the markets, as plenty of data will either solidify last week's breakout of the recent ranges, or pull the markets straight back in.
With PMI’s out on Tuesday, this could cause some significant swings on EURJPY & GBPJPY depending on the print. The reward points to a move lower, but this would require a negative print across the board.
There is clear upside to but would require a substantial close above 172.40.
With The UK CPI print on Wednesday, forecasts are expecting to see a sizeable drop in inflation due to energy consumption dropping. The print is expected to fall nearly 2bps from 10.1 to 8.3%.
As we talk about the drop in inflation, the markets are still pricing in another 25bps rate hike for June. In order for the BoE to pause hikes, we believe it will take a substantial drop in the print to even consider.
A higher than forecast print will continue to support the GBP rallies and a big drop and we could see some extended pressure on the GBP.
US Debt Ceiling
Will the US default on its own debt?
The current debate on the debt ceiling with talks continuing to breakdown, and then restart as both parties to demonstrate their powers.
It's been stated that US treasury is most likely to run out of money in the next couple weeks, expected early June. In order to avoid a catastrophe, a deal needs to be made so government doesn't shut down.
Such scenario has already been witnessed before, leaving the markets in high volatility and huge uncertainty.
A no deal option might be on the table, leading to catastrophic consequences on equities.
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