In the week ahead: ECB Interest Rates, ISM Manufacturing, Non-Farm Payrolls

The U.S. dollar posted another moderate decline on Friday, with the dollar index (USDX) ending the week almost unchanged, after hitting two-week highs earlier this week. The move came following a report on Friday which showed personal consumption expenditures (PCE) price index rising by 0.3% in April, matching the gains seen in March.

Even though inflation data still shows price pressures remain above the Fed's 2% target, with the annual increase rise in the PCE index at 2.7%, however the CME Fedwatch shows that bets for the first-rate reduction to take place in September were slightly up from 45.1% to 45.7% while November bets went up from 46.1% to 46.3%.

On the energy front, the two main benchmarks WTI and Brent accumulated a decline of around 3.5% and 3.2% respectively in the past two weeks, on signs of weak global demand for fuel as well as signs of weakening business activity in top importer China. The outcome of the long-awaited meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+) was to extend the cuts of 3.66 million bpd by a year until the end of 2025. It will also prolong the cuts of 2.2 million bpd by three months until end-September 2024.

The main US stock market indices gained on Friday following a PCE reading that showed some mild cooling in inflation, raising hopes for an interest rate cut in the September meeting, although inflation levels still remain well above the Fed’s 2% annual inflation target. Attention this week could shift to upcoming nonfarm payrolls data for May, due later this week, which is set to offer more cues on the labor market.

For Monday, some price action is expected upon the release of US and EU Manufacturing PMIs as well as US construction spending due later on. In the week ahead market focus could turn to the ECB monetary policy meeting and the non-farm employment change data.

EUR/USD

The EUR/USD pair ended the session on Friday with gains ending the week around near 1.0850 ending the week almost unchanged.

European Harmonized Index of Consumer Prices inflation rose faster than expected in May, while US Personal Consumption Expenditures Price Index inflation cooled faster than expected in April.

Pan-European Core inflation rose 2.9% MoM in May, above the 2.8% median market forecast and stretching from the previous month’s 2.7%. US PCE Price Index inflation cooled to 0.2% MoM in April. The figure comes in below the expected hold at 0.3%, driven by a sharp easing in US Personal Spending figures, which fell to 0.2% compared to the forecast 0.3% and falling even further from the previous revised print of 0.7%.

This week brings a heavy data docket, with Purchasing Managers Index (PMI) figures on both sides of the Atlantic followed by an anticipated rate call from the European Central Bank (ECB) and another print of US Nonfarm Payrolls (NFP) next Friday.

Gold

Gold prices eased on Friday as investors digested U.S. inflation report that was largely in line with estimates, although expectations that the Federal Reserve will cut interest rates this year kept bullion on track for its fourth straight monthly gain.

Traders on Friday added to bets the Fed will deliver a first rate cut in September after a U.S. Commerce Department report showed inflation may have made a little progress toward the Fed’s 2% goal last month.

While gold is often considered a safeguard against inflation, higher rates increase the opportunity cost of holding the non-yielding asset.

WTI Oil

Oil prices fell on Friday and posted a weekly loss as investors awaited an OPEC+ meeting on Sunday that will determine the fate of the producer group's output cuts. OPEC+ has agreed to extend voluntary oil production cuts of 2.2 million barrels per day into the third quarter of 2024, two OPEC+ sources said on Sunday.

U.S. crude production rose in March to its highest level this year, data from the U.S. Energy Information Administration (EIA) showed on Friday, while fuel product supplied, a proxy for demand, fell 0.4% to 19.9 million barrels per day.

US 500

U.S. main indexes rose on Friday after data showing that the pace of inflation last month met expectations kept hopes of rate cut later this year alive, offsetting tech weakness.

Treasury yields fell Friday as data showing the core personal consumption expenditures (PCE) price index, the Fed's preferred gauge of inflation, rose 2.8% in April, unchanged from a month earlier, matching expectations. Tech, continued to drag on the broader as retreats from its record high levels, with chips stock and Dell leading to the downside.

Dell Technologies slumped more than 17% after the technology group unveiled a lower-than-anticipated current-quarter earnings outlook and indicated that higher spending on building out servers to meet artificial intelligence workloads would weigh on full-year margins.