Market Update

As indicated in the provided table, this week was relatively uneventful, with extended weekends in both the US and the UK, resulting in a lack of significant market activity.
Once again, the predominant theme of the week revolved around inflation. Despite OPEC (Organization of the Petroleum Exporting Countries) announcing plans to increase daily oil output by nearly 650,000 barrels (an increase from the initial plan of 400,000), the price of a barrel of oil continued to rise. This occurred following the EU's announcement of intentions to ban seaborne imports of Russian oil and news that China was relaxing its coronavirus lockdown measures.
As we've previously explained, elevated energy prices have been a primary driver of the current inflationary pressures. Ideally, a decrease in oil prices would be preferred. Furthermore, the recent uptick in oil prices raises questions about the effectiveness of central bank tightening measures in curbing inflation.
Regarding monetary policy tightening, today, on Friday, June 3, 2022, the US employment data presented a scenario where good news can be perceived as bad news. In May, US employers added 390,000 workers to their payrolls, surpassing economists' expectations by 72,000. This unexpected surge could potentially make Federal Reserve (Fed) policymakers more inclined to pursue aggressive increases in US interest rates.
However, while the headline payroll figure reflects the robustness of the US job market, the participation rate also increased. This suggests that Americans are gradually returning to the job market, reversing the trend observed during the "great resignation" of 2021. This increase in labor supply not only kept the unemployment rate steady at 3.6%, but more importantly, it resulted in a smaller-than-expected rise in average hourly wages. This is a positive development as it could alleviate concerns about the entrenchment of inflation.
Additionally, there was positive news this week from Mercedes and Volkswagen, indicating that car production was nearing a return to normalcy, thanks to improved semiconductor supplies. This development should also help alleviate some inflationary pressures.
Looking ahead to the coming week, it appears to be another relatively quiet one in terms of economic data releases, although the data that does emerge will be of great importance.
The European Central Bank (ECB) is scheduled for a monetary policy meeting. Given forward guidance, Eurozone interest rates are likely to remain unchanged at this meeting. However, with Eurozone inflation hovering just above 8%, an interest rate increase at the next ECB meeting on July 21, 2022, seems increasingly likely. We will be closely monitoring the press conference for any hints regarding the magnitude of the rate hike.
Additionally, we will be keeping an eye on the US Consumer Price Index (CPI) for signs of whether inflation is starting to peak. Furthermore, the University of Michigan Consumer Sentiment index will be scrutinized to gauge whether wage gains are continuing to lag behind inflation, potentially indicating any emerging concerns about a recession.