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Last week ended with peak inflation as the overarching theme. US core PCE inflation did not accelerate in May, rising at the same 0.3% MoM pace as April. Markets could not brush off the back-to-back monthly declines of more than 20% in Brent crude prices to around pre-war levels. Frustrated that pump prices did not decline despite sharply lower crude prices, US President Donald Trump instructed the Department of Justice to launch an immediate investigation into major oil and refining companies for price gouging, demonstrating an unwillingness to tolerate a Fed rate hike before the November midterm elections.
The US Bureau of Labor Statistics will release the nonfarm payroll data a day earlier on Thursday, to observe Independence Day on Friday. Markets reckon that a June print of 100-130k would support a “low hire, low fire” labour market that does not rekindle a wage-price spiral or second-round effects. The ISM Price Paid sub-indices in the Manufacturing Survey on July 1 and the Services Survey on July 6 will be important previews of the June CPI report on July 14.
Hence, the European Central Bank Forum in Sintra from June 29 to July 1 provides a perfect window for central bank chiefs to adopt “vigilant neutrality.” The panel discussion on July 1 featuring ECB President Christine Lagarde, Fed Chair Kevin Warsh, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem will offer a sigh of cautious relief that fading oil-driven headline inflation is opening a window to stay on the sidelines without stressing domestic demand. The Eurozone June CPI estimate, also out on July 1, is expected to remain subdued at 0.1% MoM, after decelerating to 0.1% in May from 1% in April.
Given that this is Fed Chair Kevin Warsh’s international debut in Sintra, expect the panel to discuss the need to uphold central bank independence against political interference. Warsh’s push to end forward guidance at the Fed appears to restore the element of surprise of the Greenspan era. The ECB will likely stand by the need for qualitative framing that holds the Eurozone together after the sovereign debt crisis. The BOE’s new Bernanke framework aims to counter uncertainty by publishing more information, not less, to provide investors with alternative scenarios to manage risks.
The market's lack of panic over the recent military friction between the US and Iran is a direct result of diplomatic deals that have legally cleared the way for a flood of Iranian oil to re-enter global supply lines. On June 17, President Trump and Iranian President Masoud Pezeshkian signed the Memorandum of Understanding, an interim ceasefire deal explicitly structured to reopen the blockaded Strait of Hormuz. The US Treasury followed up on June 22 by issuing General License X, a sweeping 60-day sanctions waiver that allows for the outright production, sale, delivery, and offloading of Iranian-origin crude and petrochemicals through August 21.
Towards the end of the week, expect President Trump to heavily take credit for the recent physical drop in global oil prices during the 250th anniversary of American Independence and pitch himself as the populist defender of the American worker against greedy corporate middlemen. Trump will likely use the massive platform to signal his readiness to impose tariffs on international trading partners whose economic policies hurt the US manufacturing sector.
Overall, this week could be about clarification rather than tactically positioning for a new multi-month trend in the foreign exchange market.
Quote of the Day
“An iPod, a phone, an internet mobile communicator. These are NOT three separate devices! And we are calling it iPhone! Today Apple is going to reinvent the phone. And here it is.”
Steve Jobs
June 29 in history
The first version of the Apple iPhone officially went on sale to the public in 2007.
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