Fundamental Comment

This Week: Trade Tensions, US Inflation Data in Focus

This Week: Trade Tensions, US Inflation Data in Focus

Markets will continue to follow the latest trade crisis between the United States and China after the conflict between the two sides has intensified over the past few weeks.

Also, the US inflation report may be of some importance because of its direct impact on monetary policy decisions of the Federal Reserve.

US dollar to receive signals from inflation data

The dollar was negatively affected last week, falling to a two-month low, as expectations for the Federal Reserve's response to the escalating trade dispute between China and the US went for a possible cut in interest rates.

For economic reports this week, the US will release manufacturing, unemployment benefits and consumer confidence, but the inflation and retail sales reports may be of great interest as they will largely reflect household spending on goods and services.

The U.S. consumer price index may point to a 0.1 percent rise in May and deceleration to 1.9 percent from 2 percent year-on-year.

Retail sales are expected to increase 0.6 percent in May, following a 0.2 percent drop in April.

It should be noted that any developments or announcements related to the trade dilemma with China could have a significant effect on the movements of the dollar.

Eurozone lacks important economic reports

This week, the euro will likely be subject to the general sentiment in the market due to the absence of high-relevance economic data from the eurozone.

The euro area will release manufacturing data from a number of major economies, but the impact of the reports on euro movements may be limited.

In addition, eurozone finance ministers will meet this week, where they may discuss some important issues that usually include financial issues such as euro support mechanisms and government budgets.

Pound seeks support from economic data

The British pound posted its first weekly gain in five weeks last week, but there is still reluctance from investors to hold the pound amid the mounting political tensions in Britain.

U.K. Unemployment Report will be the most important this week, with analysts expecting the unemployment rate to stabilize at 3.8 percent in the quarter to April, while wage growth could fall to 3.0 percent year-on-year from the previous 3.2 percent.

The UK will also release other important economic indicators including industrial production, trade balance and monthly gross domestic product (GDP) for April.

Commodities face tough test

Gold recorded its highest level in four months last week after breaching the psychological level at $1300 an ounce and after benefiting from the decline of the dollar.

This week, gold is likely to remain dependent on the general trend in the market, which in turn affects the dollar and global equities, as well as the ability of the yellow metal to rest upon $1,300 as a strong support point.

Regarding oil, prices hit their lowest level in five months last week as demand sentiment remained weak amid new signs of global economic slowdown and non-strop escalation in US-China trade war.

The US government report released last week indicated that US crude inventories rose by 6.77 million barrels in the week ended May 31, increasing negative pressure on oil prices.

It should be noted that if concerns persist about the faltering global economic growth and US crude inventories continued to increase, oil prices may fail to rebound.

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