The month has been marked by a series of major geopolitical and macroeconomic developments. From renewed U.S.–China trade tensions and additional tariff announcements, to the escalation and subsequent pause in the Israel-Iran-USA conflict, triggered most recently by Iranian strikes on U.S. airbases in the Middle East, volatility has made a significant return to the markets.
In such times of elevated uncertainty, it is crucial for investors to remain focused, disciplined, and data-driven. Emotional reactions often lead to poor decision-making, while historically, periods of geopolitical tension have offered attractive entry points for long-term investors.
With geopolitical headlines temporarily subsiding, attention is shifting back to the core market drivers: macroeconomic data, Federal Reserve communication, and trade policy developments.
Despite Chair Powell maintaining a cautious stance and signaling no immediate intent to cut rates, markets are now pricing in three interest rate cuts in 2025, up from two just a few weeks ago. This dovish pricing is mirrored in the U.S. dollar's performance, which has depreciated by 1.3% since the weekly open. Notably, Fed officials Waller and Bowman have recently hinted at a potential rate cut as early as July, opening the door for a possible shift in the Fed's trajectory.
In equity markets, bullish momentum remains firmly intact. The S&P 500 is once again approaching new all-time highs, and based on current sentiment and technical structure, I expect this level to be breached within the next one to two weeks.
In FX, the EUR/USD pair has continued its upward trajectory, now approaching the 1.17 level. This movement is largely attributed to U.S. dollar weakness rather than eurozone-specific strength.
Meanwhile, crude oil prices have plunged over 15%, now trading near $65 per barrel. This comes after a sustained rally throughout May driven by geopolitical concerns. The correction in oil prices should help ease inflationary pressures, potentially reinforcing the Fed’s flexibility in its upcoming policy decisions.
In this classic “risk-on” environment, we are also seeing weakness in gold, which has pulled back in recent sessions. A short-term correction towards the $3,350 level appears possible, unless there is a material change in the underlying macro narrative.
From an international perspective, Australia’s CPI came in lower at 2.1%, down from 2.4% previously, which may provide the Reserve Bank of Australia with more room to consider policy easing.
Looking ahead, key macro data this week will include:
Thursday: Final U.S. Q1 GDP, with consensus forecasts at -0.2%, which aligns with the surge in import activity—likely driven by tariff front-loading.
Thursday: Durable goods orders, offering valuable insight into corporate confidence and manufacturing sentiment.
Friday: The Fed’s preferred inflation gauge, the Core PCE Price Index, expected to come in at 0.1% MoM, a potentially pivotal datapoint for the upcoming FOMC meeting.
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