Global financial markets are about to enter a crucial week with a flurry of data and policy announcements. Middle East geopolitical tensions are impacting oil prices, and the central banks of the US, Europe, Canada, and Japan will all be making their pronouncements. Adding to this is the release of major inflation data from both China and the US, with multiple variables jointly influencing short-term asset pricing. The first policy meeting of the new Federal Reserve Chairman, Warsh, is in its pre-meeting phase, and the strength of US inflation data may reshape monetary policy expectations for the entire year. The ECB faces a critical interest rate hike decision after more than six months, and the Bank of Canada and the Bank of Japan will also release policy signals. Meanwhile, Chinese price data will influence the Australian dollar's performance. Under the dual pressures of geopolitical conflicts and new trade policies, the US dollar, euro, yen, crude oil, gold, and global stock markets will all face significant directional decisions.



With the Federal Reserve's interest rate decision approaching, multiple risk events are intertwined.

The market's biggest event of the year—Wash's first interest rate meeting under his leadership of the Federal Reserve—is scheduled for June 17th, officially kicking off market activity. Next Monday's key economic data and events will serve as a preview of the new chairman's first press conference, but various unexpected geopolitical developments will continue to capture market attention.

A new round of armed conflict in the Middle East briefly dampened previous market optimism, but the market still holds expectations for a phase-one US-Iran agreement, with both sides potentially postponing the finalization of details regarding the Iranian nuclear issue. Reports indicate that Israel has launched a new round of military operations in Lebanon, directly impacting the framework of US-Iran-Iran nuclear negotiations, leading to disagreements between US President Trump and Israeli Prime Minister Netanyahu.

International oil prices remain high, and the market's reaction to negative geopolitical news has become more rational. However, even if a US-Iran agreement is reached in the short term, it often takes months for global oil transportation routes to fully return to normal, and market expectations for a rapid decline in oil prices lack realistic support.

Meanwhile, the U.S. government officially announced its tariff adjustment plan: the 10% global import tariff levied under Section 122 will expire in July and will be replaced by the new tariff under Section 301, with the new tariff rate ranged from 10% to 12.5%, and China, India, Japan, and South Korea will be subject to the higher tariff rate; the new rules will be implemented in July after each country has completed its review.

Implied volatility across major asset classes remained generally low: the one-month implied volatility for the euro against the US dollar and gold fell to new lows since mid-January, while the volatility of the S&P 500 also declined, approaching February levels. Only the volatility of yen-denominated currency pairs and the Nikkei 225 index rose significantly due to the impact of the Bank of Japan's important interest rate meeting.

Key US inflation data released.

This low-volatility pattern may be broken next week, with the US May CPI and PPI to be released next Wednesday and Thursday respectively, becoming the focus of the entire market. Current market forecasts predict that the US overall CPI and core CPI will rise again year-on-year, reaching 4.2% (a new high since June 2023) and 3% respectively. Once the data is released, it will inevitably disrupt global asset pricing.

Even if dovish Federal Reserve officials interpret high inflation as a short-term phenomenon, the rise in producer price data is more worrying: the market predicts that the US PPI will rise by more than 6.5% year-on-year, reaching its peak since January 2023. Due to the lag in price transmission across the industrial chain, high ex-factory prices are likely to further push up the terminal CPI. In addition, the preliminary reading of the University of Michigan consumer sentiment index on Friday may hit a new low for the period, warning of concerns about the momentum of US household consumption.

Even with inflation data exceeding all benchmarks, the probability of the Federal Reserve shifting to an aggressively hawkish stance next week is limited in the short term, but it will undoubtedly make policy-making in the early stages of new Chairman Warsh's tenure extremely difficult. Trump nominated Warsh primarily because of his past dovish stance, but the persistently soaring inflation environment makes it difficult for him to continue with easing measures. At his nomination hearing in May, Warsh stated his intention to rebuild the Fed's credibility and reduce its balance sheet, thus plunging his true policy stance into market debate.

The US dollar became the core focus of the market this week. Influenced by the relatively moderate pace of Trump's tariff implementation, the dollar's resilience exceeded market expectations. A successful US-Iran reconciliation will temporarily boost the euro and weaken the dollar, but the US-US interest rate advantage, continued global capital inflows into US stocks, and the strong fundamentals of the US economy will support the dollar and prevent a deep correction. If inflation exceeds expectations, forcing the Federal Reserve to turn hawkish, the dollar is expected to see a strong rally in June.

The ECB raised interest rates as expected. Will it continue its hawkish stance?

The same week that US inflation data is released, the European Central Bank's (ECB) interest rate meeting next Thursday will also influence the Federal Reserve's policy pricing. The market widely anticipates the ECB will raise interest rates for the first time since September 2023, directly addressing the reality of worsening inflation in Europe. While the resumption of navigation in the Strait of Hormuz will alleviate energy cost pressures in Europe, it is insufficient to halt this rate hike.

Judging from the recent flurry of statements by ECB officials, the Frankfurt meeting will likely focus on the baseline scenario of worsening inflation, with the relevant fundamentals objectively supporting the central bank initiating a continuous rate hike cycle. The ECB will not officially announce a July rate hike in advance, but if hawkish voices within the ECB rise, Lagarde can guide market expectations for a rate hike through the press conference. If the central bank significantly raises its 2026 Eurozone overall and core CPI forecasts, it will also signal a continued rate hike in July. Therefore, this press conference is attracting considerable attention from investors, and Lagarde needs to be careful with her wording and avoid past mistakes.

Despite the ECB initiating its interest rate hike cycle, the euro has failed to break strongly against the dollar. Only this rate hike, coupled with hawkish remarks, could trigger a short-term surge in the euro. In the medium to long term, concerns about Eurozone economic growth will continue to limit the euro's upside potential. The end of the Russia-Ukraine conflict and a full recovery in EU-Russia trade relations are the key variables to completely reverse the euro's medium- to long-term trend.

The Bank of Canada held rates steady, the Australian dollar closely tracks Chinese prices, and the Japanese yen hopes for intervention from the Bank of Japan.

The Bank of Canada will hold its interest rate decision next Wednesday. Weak domestic employment, slowing economic growth, coupled with a cooling April CPI and weaker-than-expected first-quarter GDP, lead the market to widely expect the central bank to maintain its benchmark interest rate. Furthermore, with the USMCA review approaching in July and the US planning to impose a 10% tariff on some Canadian goods, the complex US-Canada trade friction will also limit the Bank of Canada's room for tightening policy.

The key focus for the Australian dollar is the Westpac June Consumer Confidence Index. However, if China's CPI and PPI data next Wednesday significantly misses expectations, it could also trigger volatility in the Australian dollar. Both the Canadian dollar and the Australian dollar have already accumulated considerable losses, and negative fundamentals next week could further drag both currencies down.

The USD/JPY pair is currently hovering below the 160 level, and Japan's Ministry of Finance has chosen to postpone intervention in the foreign exchange market, awaiting the Bank of Japan's interest rate decision on June 16. If the Bank of Japan's interest rate hike and policy statements fall short of market expectations, Japan will likely be forced to intervene significantly in the yen's exchange rate.

US stocks continued their rally, cryptocurrencies weakened, and gold showed signs of bottoming out.

Global funds continue to flow into US stocks, with major indices remaining near historical highs. Broadcom's disappointing earnings report briefly dampened the AI sector's enthusiasm, but negative news from a single company is unlikely to reverse the sector's overall trend. Next week's earnings reports from Oracle and Adobe, coupled with SpaceX's IPO, may prompt the market to reassess the valuation bubble in US stocks. Since the end of March, US stocks have experienced an exponential rally, rising by 20% in just over two months. A technical correction of 5%, retracing to the 7000-point range, could help solidify the foundation for this upward trend. However, whether the market can rationally absorb this pullback remains to be seen.

In contrast, gold prices have been weak, almost entirely tied to the dollar's performance. Many countries continue to sell gold to recoup funds, stabilizing their currencies and offsetting losses from oil imports, further suppressing gold prices. If US inflation data exceeds expectations again next week, the dollar could surge, potentially shattering the current fragile stabilization of gold.