The week started with markets rushing to safe heavens, as the uncertainty over FED’s pathway looms large, at the same time conflicts in the Middle East have unexpectedly arrived at the peak. The NFP report produced little optimism on changes in the rate hike timeframe as the economy added 145K jobs, salaries increased by 0.2%, being close to the projections. Markets possibly expected more in hopes of strong arguments from the FED. The futures market plays a 95.8% chance of a rate hike in June, as the payrolls report showed that unemployment continues to decline and reached 4.3% in May. The two key parameters that the FED takes into account are inflation and unemployment, so the strengthening of these indicators can serve as a signal for the accelerated rate of the regulator’s policy tightening. Officials have entered a time of silence ahead of the new meeting, so now new hints will be given about the possible policy changes. Today, the focus will be on the activity in the US non-manufacturing sector, which will allow us to give an estimate of the US consumption.
Unexpectedly, the increased geopolitical tensions has again become the main focus of investors’ attention. Four countries in the Middle East region – Saudi Arabia, Bahrain, the United Arab Emirates and Egypt have cut diplomatic ties and also ceased air and sea communications with Qatar, accusing the country of “sponsoring and media support of the terrorist groups aimed at thwarting stability in the region”. This is probably referring to the armed group of ISIS acting Syria. The Oil market reacted with fear, as the transportation blockade could affect the production in the region and cause outages in supplies. The catarrian stock market went into a deep selloff. The new round of geopolitical instability increased the demand for defensive assets. Adding more than $15 per ounce, Gold stabilised at $1.282, the date for settlement of futures contracts was changed to August. The further dynamics of the asset will depend on the developments in the Arabian Peninsula and details of the investigation between Trump and Moscow. Director of the FBI, James Comey, will be required to give testimony before Congress this week. The target of $1,300 per ounce is a very plausible scenario amid the geopolitical changes taking place and the uncertainty in the policies of central banks.
The Pound is recovering losses, as investors are hoping that the conservative party of Theresa May will manage to strengthen its position in the parliament before the 8th of June. And although the distance between the party of May and the Labor Party has been reduced recently, it is likely that the polls may give incorrect forecasts. The British currency ignored the activity reports in the services sector and a composite activity index, which turned out to be lower than expected. PMI in the services sector was 53.8 points in May, with a forecast of 55 points, reflecting a drop in consumption in Britain due to the rising inflation, which reduces the population’s purchasing power.
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