US stocks ended the week on a high note last Friday, with both the S&P 500 and Nasdaq Composite notching new record highs after modest 0.5% climbs. The Dow Jones meanwhile enjoyed a 1% daily gain but remains a step below an all-time high of its own. Only one day of trading remains before markets close the books on Q2; suffice to say the first half of the year has been an interesting one. The violent sell-off in April saw drawdowns of over 20% across the board and wreaked havoc among financial markets, but ultimately the carnage caused no lasting damage, as indices in the US and around the world are once again in the green for the year.
The obvious question is where do markets go next? The latest PCE price report published last Friday indicated an unexpected rise in core US prices, while the headline inflation figure fell in line with expectations at 2.3%. The Fed would ideally like to see inflation a little lower before slashing rates on the Dollar, but a number of board members are starting to call for rate cut sooner rather than later. The other element of the Fed’s remit is of course the US labour market, which has proven resilient so far this year. That could all change on Thursday however with the release of the latest non-farm payrolls. The report comes a day early this month because of US Independence Day on Friday.
Nations around the world have now had a few months to renegotiate their trade deals with the US, and while some regions have been more fruitful than others, some markets are beginning to show signs of hope. The Nikkei 225 rose back over 40,000 points on Friday as a trade deal between Japan and the US came closer to fruition and the index pushed higher still this morning in the Asian session. Even the ice-cold relations between the US and China are beginning to thaw after months of challenging talks. The Fed had been reticent to move the needle on interest rates in part because of the uncertainty surrounding tariffs. As that uncertainty dissipates, the Dollar is likely to experience even greater pressure. The DXY has touched 97 on the last two trading sessions and is barely holding above it at the time of writing.
Not much on the economic calendar today with the exception of Chinese manufacturing and non-manufacturing PMIs. Tomorrow brings more of the same in the form of manufacturing PMI data from around the world, as well as the first glimpse into the US labour market with the latest JOLTs job openings. Wednesday delves a little deeper with the ADP employment change. On Thursday, manufacturing data gives way to services PMIs but as mentioned earlier, the main event of the week will be the latest NFP report. Current predictions are for 110k new jobs and an uptick to 4.3% unemployment. No significant earnings reports this week.
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