05.05.23 - 19.05.26
Results of the previous week
US indices have been trading mixed this week. Support came from the corporate earnings reports, including Nvidia's very strong numbers. At the same time, the lack of an agreement on raising the US national debt ceiling amid the threat of a default on 1 June weighed down the stock market.
The currency market has switched into risk aversion mode, which, despite not having the best news out of the US, has helped the dollar feel fairly confident. It also emerged that Germany, the eurozone's largest economy, saw a drop at the end of Q1 2023, signalling that it's entering a recession, news that harmed the euro.
Oil prices are showing a mixed trend. Early in the week, the price of Brent oil (BRN) fell. Just like the majority of risky assets, oil was reacting to the situation regarding the US national debt ceiling. Fears of a US default also trigger concerns about the world economy and, consequently, the energy market's prospects.
Key events of the current week
Germany. Unemployment figures
Revised data show that the German economy shrank by 0.3% in early 2023. This is the second quarter in a row that Germany has seen a decline, which signals a recession. This is the first time since the COVID-19 pandemic that this has happened. Price growth led to a decrease in consumer activity, which consequently affected other economic indicators. In this scenario, the labour market takes on a special role. Given that unemployment will increase amid high inflation, this will worsen consumption and put pressure on the euro. In that case, EUR/USD could decline to 1.0580.
The US. ISM Manufacturing PMI
The US economy feels relatively stable despite the US Fed raising its key interest rate to its highest level since 2006. GDP growth figures aren't the best, but there are no hints of a recession yet. According to forecasts, the manufacturing sector is starting to gradually recover. And though PMI remains in decline, it shows signs of a slowdown, which is good news. If the report meets expectations, stocks could receive a boost.In this scenario, we could see Dow Jones move to somewhere around 33,030.
The US. Non-farm payrolls
The state of the labour market is still one of the most important indicators for the US Fed when deciding its monetary policy stance. Inflation is gradually decreasing, giving markets hope that the Fed will pause its cycle of rate hikes. If the data on new jobs and unemployment rate meet expectations or come in slightly higher, it will provide additional confirmation that the regulator won't increase its interest rate at its next meeting. Such a move is unlikely to support the dollar, but assets denominated in it would see some positive outcomes.Gold (XAU/USD) could target a return to 1,982.