02-06-2025
- Business
- Business Recorder
Financial markets likely to be influenced by ongoing geopolitical issues
The Federal Reserve's preferred measure, the US April core Personal Consumption Expenditure (PCE) price index, nudged down to 2.5 percent year over year from the previous 2.6 percent, indicating a continuation of the trend toward decelerating inflation.
However, concerns about a potential resurgence of inflation driven by global trade tensions complicate matters. The futures market for the Fed's funds shows a 95 percent likelihood that the Fed will maintain its policy rate in June, alongside more than 70 percent probability of keeping the rate steady in July.
In addition, the US continues to point fingers at compliance issues with China, claiming that the nation is breaching its trade agreement, as noted by its trade representative via social media. Previously, the US Treasury Secretary remarked that trade talks with China were 'a bit stalled.' Nonetheless, there are still indications of a potential high-level meeting between representatives from both nations.
Earlier last week, a US Federal Court overturned Trump's 'Libertarian Day,' which shook up the markets, but an appellate court later reinstated his request to reestablish tariffs. During this time, financial markets experienced significant volatility amid uncertain conditions.
The global trade situation remains a persistent issue that is likely to resurface intermittently.
The trade friction between the US and the European Union (EU) is merely postponed until the new deadline of July 9. This unresolved dispute continues to be open for negotiation, with the onus on the EU to propose a deal, as the US president has made it clear that he intends to impose a tariff.
Nevertheless, the potential for an escalation in the trade tariff dispute between the US and China remains.
Some analysts still insist that tensions are intensifying. Media reports indicating that the US is thinking about broader technology sanctions against China and a potential crackdown are concerning developments.
Meanwhile, on the economic front, although the consumer prices appear stable, inflation expectations remain elevated. Traders will be paying close attention to the employment report scheduled for release on Friday, as investors will be on the lookout for any indications of a cooling labor market, which could influence the direction of future interest rates.
Additionally, other economic data to be released this week includes the ISM Manufacturing index, US JOLTS job openings, US ADP employment figures, ISM services data, and US weekly jobless claims.
On Wednesday, the Bank of Canada (BoC) will be making its monetary policy announcement. The European Central Bank (ECB) will follow on Thursday with its own policy statement.
The BoC will issue a monetary policy statement without a follow-up press conference. Minutes from the previous meeting indicated a division among members regarding whether to maintain the current rate or implement a cut.
This suggests that while inflation remains manageable this year, the BoC may consider one more rate cut.
The ECB will announce its interest rate decision on Thursday. The European economy is still encountering significant obstacles and the future continues to be unclear, made even worse by ongoing trade tensions.
While there is general agreement on a 25 basis point rate cut, it must be challenging for policymakers to take decisive action amidst such uncertainty. The European Union is making considerable efforts to secure an agreement regarding the extended tariff deadline, which now runs until July 9. The potential implementation of tariffs presents a considerable risk, as they would inevitably drive inflation higher.
This week, the financial markets will be influenced by various ongoing geopolitical issues. Additionally, Donald Trump's remarks regarding global economic matters may keep investors alert.
WEEKLY OUTLOOK - June 2-6
GOLD @ $ 3289.50— Gold faces resistance levels at $ 3308 and $ 3328. I anticipate a softer trend. A drop below $ 3238-40 would heighten the chances of a decline reaching $ 3210. If that doesn't happen, and gold moves up, we may see a rise to $ 3355.
EURO @ 1.1348— The Euro needs to surpass 1.1410 to reach 1.1480, which could be tough. However, is that a drop below 1.1245 could lead to a decline towards 1.1130.
GBP @ 1.3461— Pound Sterling has good support in the 1.3330-40 range. Nevertheless, a decisive break of 1.3545 would likely lead to testing the 1.3590-00 levels.
JPY @ 144.06— I anticipate that support at 142.80 will remain intact, allowing for a rise towards 145.80. A breakthrough will increase the likelihood of approaching the 146.60 levels.
Copyright Business Recorder, 2025
