Sliding stocks

Giles Coghlan LLB, Lth, MA Financial Source

A summer slide in stocks may have begun this week with European stocks falling to their lowest levels in 2 months. US debt ceiling talks dragged on, UK inflation ran hot prompting calls for even higher UK rates, and geo-political risk continued in the background. Although the US debt ceiling issue is expected to be resolved by next week at the latest, the closer we get to the June 1 deadline, the greater the chance there is of a default. So, this is now a game of political brinkmanship with serious economic risks at stake if it goes wrong.

Other key events from the past week

USD: Debt ceiling talks, May 22: Debt ceiling talks still dominated markets this week. With a deadline of June 1 being circulated the risk is that the US may head into a default if the debt ceiling is not raised. If the US defaults on its debt then some analysts see a 15% correction lower in the S&P500 possible.

UK inflation data: Hot inflation, May 24: Going into this inflation print it was going to be an important one for BoE policy. The headline came in at 8.7% y/y and the core above all economist’s expectations at 6.8%. Interest rate markets immediately priced in a 100% chance of a 25 bps June rate hike from the BoE.

Euro Stoxx: European stocks sink, May 24: A flurry of negative sentiment news hit European markets this week. High UK inflation, geo-political tensions, debt ceiling talks, and weak seasonal stock patterns all sent European stocks to their lowest levels in 2 months midweek. Are there more falls to come?

Key events for the coming week

EUR: Eurozone inflation, June 1: Eurozone inflation data is expected to fall in May to 6.5% y/y from 7% prior. Investors will watch the inflation print closely. If the print comes in higher than expected then watch for potential EUR strength.

Time for Illumina to shine?

USD: US labor data, June 2: US labor data next week will be a major focus for investors. Investors will look for signs of weakness in the US labor market to confirm a Fed pause in rates. Watch the EURUSD closely for volatility over the US labor print next week.

Learn more about HYCM

Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.