Fundamental Comment

Market Focus: US Jobs Report, ECB Policy Meeting

Market Focus: US Jobs Report, ECB Policy Meeting

The most important reports this week are the monthly U.S. jobs report and the European Central Bank's monetary policy meeting, in addition to any trade related developments between the U.S. and its trading partners.

It is important to note that the manufacturing and service PMI reports that will be released from a number of major economies this week could have a significant impact on investors' sentiment, given the latest concerns regarding the slowdown in the global economy.

But trade war may still overshadow any event, especially after U.S. President Donald Trump announced tariffs on US imports from Mexico.

Dollar May Surrender Gains

The dollar's movement is expected to be significantly affected by any trade-related developments, whether any hit back from China, Mexico or any other US trading partners.

If the trade war fuses more this week, the dollar could benefit and continue to climb, while the opposite is true, noting that the dollar still plays the role of safe haven currency.

In terms of economic data, the jobs report may indicate that US employers created 180,000 jobs in May, and the unemployment rate stabilized at 3.6%, according to expectations of the non-farm payrolls due on Friday.

The manufacturing and services PMI will also be of interest to investors as it may give an initial impression of the shape of growth in the US economy in the second quarter.

ECB Economic Forecasts to Weigh on Euro

The euro will be subject to economic remarks from the ECB President Mario Draghi, following the Governing Council meeting to set interest rates, where the central bank will announce the latest growth and inflation forecasts for the euro area.

The ECB is expected to maintain interest rates at its record low, but the central bank may cut its growth and inflation expectations again after it slashed them in March.

Markets will wait for details about the latest economic developments in the Eurozone amidst the global economic slowdown and global trade risks, as well as the uncertainties regarding Britain's exit from the EU.

On the economic data front, investors will focus on the final PMI manufacturing in the eurozone, which may show a modest expansion in May to 51.6 from 51.5 in April.

The euro area will also release the final GDP for the first quarter of this year, which could show stability in the pace of euro-area growth at 0.4 percent, after registering 0.2 percent expansion in the fourth quarter last year.

The flash consumer price index in the 19-nation region may signal a fall to 1.6 percent in the year ended May from a previous of 1.7 percent.

PMIs Could Affect Pound Movements

The Pound Sterling fell for a fourth week in a row last week and some analysts expect investors to remain short on the pound amid the growing concerns about Britain's political position as well as the Brexit uncertainty.

The UK will release the PMI manufacturing, construction and services for May, which will give the latest update on the health of the economy in the second quarter.

The manufacturing and construction PMIs are expected to show a retreat in May, while the services sector index will rise to 50.6 from 50.4 in April.

Commodities to Grab Attention

Despite the sharp rise in the dollar last week, gold was able to benefit from the panic of the trade war, rising to around $1,300.

The direction of the yellow metal this week will largely depend on the latest developments in the trade war, as the precious metal will attempt to breach the psychological level at 1,300 targeting $1,314.

For crude oil, Brent crude prices dropped last week to witness the biggest monthly drop in six months, as Donald Trump intensified the trade tensions thereby affecting global oil demand expectations.

Brent crude fell to a two-month low by the end of last week, with the return of US oil production to a record high of 12.3 million barrels per day and after a much lower-than-expected decline in US crude stockpiles.

But prices may find some support at $64 a barrel, which could halt the recent losses that began since Brent prices recorded $75.60 per barrel on April 25.

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