Indices
The SPX500 index continued its rise in the wake of upbeat macroeconomic data releases. Private sector employment showed an increase, and initial jobless claims declined. The equities wrapped up another strong week, as investors remained focused on reopening the U.S. economy. The SPX500 closed the week on Friday at 4,229.89, inches beneath the all-time high level, despite the weak NFP report.
The U.S. dollar index (DXY) lost its gains during the week but closed above 90.00. Following two months of broad weakness, the dollar's near-term direction is uncertain as the currency awaits more evident signs from policymakers. The dollar rallied to a three-week peak on Thursday after weekly U.S. jobless claims fell below 400,000 for the first time since the pandemic started. However, the U.S. dollar index sank by 0.38% to 90.135 by Friday night, dropping from the previous day's biggest gain in a month, all due to the job report.
KEY POINTS
Bank of America issued global research regarding the seasonality for the SPX500. For more than 90 years, its seasonality patterns indicate a summer rally for the index in June or July. BoA pointed out that a summer rally's potential is even stronger in the first year of a presidential cycle. The bank also issued its screen for the top growth stocks for June, which included Amazon, Facebook, Netflix, Alphabet, and many more.
The equity investors will closely watch the negotiations between Democrats and Republicans in Washington over President Biden's proposal of a 1.7 trillion USD infrastructure deal. The government infrastructure spendings expectations have already boosted the industrials and materials stocks. Both sectors gained around 20% since the start of the year. These significant gains may cause a potential selloff if Biden's plan is rejected by Congress next week.
Most traders are still bullish this year with the stimulus. The Fed is committed to being dovish with the economy reopening due to vaccinations and overall corporate earnings rising.
Currencies
Weekly changes: EURUSD -0.16%, GBPUSD -0.27%, USDJPY -0.38%, USDCAD -0.12%
EURUSD jumped above 1.2150 after Nonfarm Payrolls missed estimates. The pair managed to bounce off lows to 1.2100 at the end of the week before rising to 1.2163 on Friday. Meanwhile, next week will continue its fluctuations, awaiting three consecutive blows from the eurozone. Although the initial momentum is positive for the pair, much will depend on ECB rhetoric and continental economic indicators.
GBPUSD finished the week practically unchanged but fluctuated from a three-year high of 1.4250 to 1.40830. On Friday, BoE Deputy Governor Cunliffe said they saw a strong bounce back in the economy as COVID restrictions eased. The U.K. will lift the restrictions in two weeks. The current resistance levels are 1.41774 and 1.4200, while support levels equal 1.41145 and 1.40837.
By midweek, USDJPY consolidated near the two-month tops, holding above 110.00. Thursday's upbeat U.S. data continued supporting the greenback. Nervousness ahead of NFP benefitted the safe-haven Japanese currency. However, the currency pair fell sharply after the release and lost 0.52% each day, stopping at 109.70 by Friday night.
KEY POINTS
The U.S. Nonfarm Payrolls report was the main awaited event of the week. The main event was also the main disappointment. Payrolls rose but lacked more than 100,000 people employed amidst the expectations. Despite widespread openings, that was a solid number. The greenback fell against all major currencies in response, as the 10-year U.S. Treasury yield slipped nearly 4% to 1.557. Therefore, it became evident that the Fed won't start taper talks this month.
The ECB is likely to extend its phase of faster bond-buying through the summer to ensure the economic rebound after COVID lockdowns grew into sustained recovery. Another focus of the meeting is the ECB's review of its strategy. The Bloomberg economists suppose the central bank's revised approach will include a symmetric inflation target, meaning policymakers will react equally to too-low and too-high results. The inflation target will settle at 2% instead of the current 'below, but close to 2%'. Since the following week will be busy for the eurozone, it's more likely the continental currency will gain the upper hand over the greenback this time. The U.S.dollar's fall could be limited by Thursday's CPI publication in the USA.
The greenback's weakness drove the Canadian dollar higher in the USDCAD pair, despite the job losses in the country. The good news was that the losses were less than the previous month. The government plans to ease restrictions and expects jobs to return by autumn. The Bank of Canada holds a conference next week, and since it reduced the bond-buying programme in April, the regulator would likely put his policy on hold.
Gold
Weekly changes: XAUUSD +0.55%
XAUUSD rebounded from 1,855 USD, cutting a weekly decline as a smaller-than-expected gain in U.S. payrolls helped ease concerns that the Fed will pull back stimulus. Gold has declined after jumping the most in ten months in May based on concerns that faster economic growth would increase inflation, which would be why governments and central banks withdrew support.
Nevertheless, the Fed is likely to keep its monetary policy unchanged, supporting the gold prices today.
KEY POINTS
ETF focus on commodities such as gold generated strong returns in 2021. Investors, long wary of such funds, are now putting money into them, betting on the recovery from the pandemic will charge demand for metals. Gold traders, particularly 'longs', are trying to return to the high 1,900s USD and the more challenging 2,000 USD levels. The May Nonfarm Payroll report showed to markets that the poor April report was not a fluke. There were just 266,000 jobs added in April, a bigger disappointment than in May, considering the shortfall of at least 700,000 against the forecast. Much of the bearish positions in gold probably would be undone as the Fed will be seen nowhere ready to talk about interest rate tapering.
Important levels: 1,815, 1,850, 1,890, and 1,900.
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