Investors cheered the passage of the debt ceiling bill in the Senate on Friday which contributed to wider joy in stock markets as they hit nine-month highs. Another hot employment report added to the mood as it showed that the US economy is still in very good shape. The benchmark S&P 500 posted a third straight week of gains and a strong close. Crucially the blue-chip index settled above the widely watched 4,200 zone and this could mean we see more upside with clear bullish momentum.

The calendar is fairly light Stateside with Monday’s ISM services PMI the only real top-tier data. Money markets have settled on the “skip” theme where the Fed keeps rates unchanged at its meeting next week but with more chance (53%) of a July 25bp rate hike. Friday’s hot jobs data has ticked one box for a rate move while next week’s inflation data could seal the deal. We have now entered the blackout period for Fed speakers so there will be no commentary from officials on the wires.

We do get two central bank meetings this week with the RBA decision on Tuesday first up. The bank will most likely stand pat after it recently confused markets somewhat as it turned more hawkish than many expected even as inflation was weakening. That picture may have now reversed but traders may have to wait until the August meeting after the second quarter inflation data for a clearer picture. The faltering recovery in China has also not helped the heavily linked Australian economy. After falling to more than six-month lows, the aussie has rebounded back into the March – May range above 0.66. Strong support resides around 0.65 with the 200-day simple moving average above at 0.6693.

The Bank of Canada will also be of interest with the non-negligible chance of a rate hike as well. The bank has been on pause since March holding rates at 4.5%, but GDP saw a decent rebound recently and the labour market is heating up again. The last statement warned that policymakers were prepared to raise rates further to combat inflation risks, though they also stated that monetary policy operates with long and varied lags. USD/CAD has been trapped in a range over the past few weeks with a support zone around 1.34 and then the early May low at 1.3315. The upside is currently capped by resistance at 1.3500/10.

Major risk events of the week

05 June 2023, Monday

–US ISM Services: The market median for the May ISM non-manufacturing is 52.5 after the prior 51.9. Services remain in a steady pace of growth so are not yet contracting amid a surge in exports. But businesses continue to face higher input prices and credit conditions are tightening. The services industry accounts for more than two-thirds of the economy.

06 June 2023, Tuesday

–RBA Meeting: Consensus anticipates that the RBA will keep the cash rate on hold at 3.85%. There remains an uncertain picture from recent inflation and labour force updates. That said, the Governor’s statement is likely to continue to exhibit a clear tightening bias as risks to inflation dominate.

07 June 2023, Wednesday

–Bank of Canada Meeting: Money markets price in only around 10bps of hikes for this meeting, though there are 22bps baked in for the July decision. Recent GDP data reflects an economy that retains a lot of momentum amid sticky inflation. Analysts say a little more “insurance” tightening may be appropriate. 

09 June 2023, Friday

–Canada Jobs: Canada’s labour market is expected to remain relatively resilient after the economy added more jobs than forecast in April. That was the eight consecutive month of job gains. The jobless rate stayed near a record low for a fifth straight month, despite small signs of an economic slowdown. Another strong set of jobs numbers could bring rate hike bets forward, boosting the Canadian dollar.