This week, the market ended an important trading week: the US non-farm payrolls report performed poorly, consistent with most of the US labor data released this week, which intensified speculation that the Fed may cut interest rates in September. At the beginning of this week, the market still believed that the probability of the Fed cutting interest rates in September was about 60%, but after the release of the non-farm payrolls report, this probability increased to about 75%.

As in recent months, the overall growth in employment is mainly due to strong growth in the government and private medical care industry. However, it is worth noting that the latest estimates show that the monthly employment growth in the past 12 months to May has been revised down by an average of 0.024 million people, indicating that the data for June may look much worse after several months.

Speculation about the Fed's interest rate cuts intensified, putting pressure on the US dollar for most of this week, while commodities and US stocks continued to rise. The S&P 500 index and the Nasdaq 100 index set new records several times this week. Gold and silver prices rose sharply on Friday, and oil prices rose for the fourth consecutive week. As Europe and the United States enter the summer season, inventory shrinkage and supply concerns continue to support oil prices.

It is worth noting that next week will also be a "busy week": on Tuesday and Wednesday next week, Fed Chairman Powell will "bravely" climb Capitol Hill to give a semi-annual monetary policy testimony; next week on Thursday, the United States will also release June CPI data, and investors must continue to be vigilant.

The following are the key points that the market will focus on in the new week (all in Beijing time):

Central Bank Dynamics: Powell's Brave Hill! Will gold hit a new high in history?

Federal Reserve:

At 21:15 on Tuesday, Fed Director Barr was invited to speak at an event hosted by the Federal Reserve;

At 22:00 on Tuesday, Fed Chairman Powell will deliver a semi-annual monetary policy testimony to the Senate Banking Committee;

At 01:30 on Wednesday, Fed Director Bowman will make introductory remarks at an event hosted by the Federal Reserve;

At 22:00 on Wednesday, Fed Chairman Powell will deliver a semi-annual monetary policy testimony to the House Financial Services Committee;

On Wednesday, 2025 FOMC voting member and Chicago Fed President Guolsby will participate in an online event;

At 02:30 on Thursday, 2025 FOMC voting member and Chicago Fed President Guolsby will give the opening speech at an event;

At 20:30 on Thursday, 2024 FOMC voting member and Atlanta Fed President Bostick will participate in a Q&A;

At 01:00 on Friday, 2025 FOMC voting member and St. Louis Fed President Mousalem will give a speech on the economy;

Due to high inflation, Fed officials did not have enough confidence to cut interest rates at the last rate policy meeting. But some policymakers argue that signs that the labor market may weaken faster than expected must be closely watched. Opinions on how long high interest rates should last among officials are still divided.

According to the latest released Fed meeting minutes, some officials emphasized the need to remain patient. They are waiting for more evidence of cooling inflation and reiterated that cutting interest rates is not an appropriate move before more data enhances their confidence in inflation returning to its target. Several decision-makers even maintained their willingness to raise interest rates, although recent evidence shows that the Fed's anti-inflation task has made some progress.

Nick Timiraos, the Wall Street Journal reporter known as a Fed megaphone, pointed out that according to the latest meeting minutes, officials generally held a wait-and-see attitude towards adjusting interest rates, but emphasized a variety of viewpoints that may prompt the Fed to raise or cut interest rates. If we integrate the recent public speeches of Fed officials, it has shown that they are unlikely to cut interest rates at the meeting this month.

Since last month's meeting, Fed officials, including Powell, have expressed that they are generally satisfied with the recovery of inflation, indicating that the possibility of a rate cut in September still exists.

This week, at the European Central Bank Forum held in Sintra, Powell said that they are returning to the "anti-inflation track," but he added that they hope to have more confidence in inflation falling back to its 2% target before beginning to relax policy.

His remarks were interpreted by the market as possibly requiring two 25 basis point interest rate cuts this year, although the Fed's own dot plot only shows one rate cut. More importantly, after poor performance in June's PMI data, the market believes that the probability of the Fed's first rate cut in September has risen to 80%.

Next week, Fed Chairman Powell will testify on monetary policy for the semi-annual congressional testimony for two consecutive days on Capitol Hill. At that time, the Fed chairman will deliver a prepared statement and then the committee will have a question and answer session. Of course, the Fed's timing of interest rate cuts and its views on recent data are almost certain to be asked, and investors need to pay close attention to Powell's answers.

For gold, influenced by a series of data supporting the Fed's interest rate cuts, its price has returned to the highest point in the past two weeks, only one step away from the $2,400 mark.

FXStreet analysts believe that $2,400 is a direct resistance level for gold. Breaking this level will bring the price of gold closer to its historical high of $2,441. Considering the current sentiment in the gold market and many indicators showing a bullish signal, the possibility of gold breaking through these key positions is high.

Ole Hansen, head of commodity strategy at Saxo Bank, said that it may be too early to say that the consolidation period of gold is over, but he remains optimistic that the price of gold will eventually rise. "If the market continues to rise, I will be a bit surprised, as the recent correction is relatively small, indicating that either the potential demand of the market is strong when the price is low, or the longs who have built up positions believe that there is no reason to reduce their risk exposure."

Other central banks:

On Wednesday, the Reserve Bank of New Zealand will announce its monetary policy decision, and the market expects that it will continue to stand pat, with only a 5% chance of a 25 basis point rate cut.

At its May meeting, the bank said it needed to keep policy at a restrictive level to ensure that inflation fell back to its target level, and more importantly, it discussed the possibility of raising interest rates at the meeting.

Since then, New Zealand's first-quarter retail sales have exceeded expectations, and GDP data shows better-than-expected economic growth in the quarter. Although inflation data has not been released, the above data confirms that the RBNZ can maintain a hawkish stance.

However, investors expect that the rate of interest rate cuts by the end of the year will be slightly higher than 40 basis points. Since there is no reason for the RBNZ to turn to a more dovish stance, reiterating the information from May may prompt investors to reduce their expectations of rate cuts, thereby boosting the New Zealand dollar.

Important data: Will CPI continue to heat up risk sentiment? The US dollar may face a major risk!

Monday 23:00, US June New York Fed inflation expectations for one year

Tuesday 18:00, US June NFIB Small Business Confidence Index

Wednesday 0:00, EIA releases monthly short-term energy outlook report

Wednesday 09:30, China's June CPI data

Wednesday 22:00, US May wholesale sales monthly rate

Wednesday 23:00, EIA crude oil inventory until July 5

Thursday 01:00, US 10-year bond auction until July 10

Thursday 14:00, UK May quarterly GDP, UK May manufacturing output monthly rate, UK May seasonally adjusted trade balance, UK May industrial output monthly rate

Thursday 16:00, IEA releases monthly oil market report.

Thursday 20:30, US June CPI, core CPI, and initial jobless claims until July 6

Friday 10:00, China's June trade account.

Friday 10:50, China's June trade account in USD.

Friday 14:45, France June CPI.

Friday 20:30, US June PPI, Core PPI.

Friday 22:00, US July One-Year Inflation Rate Expectations, University of Michigan's Preliminary Consumer Sentiment Index.

Most of the labor market data released this week suggest that the US labor market is slowing down. And Friday's non-farm payroll report seems to send a clear message to the Fed that there is a risk of lagging behind the curve.

According to the US non-farm payroll data released on Friday, the US added over 0.2 million jobs last month, exceeding market expectations. However, the unemployment rate rose to the highest level since November 2021, and wage growth was the slowest since May 2021.

Michael Feroli, JPMorgan's economist, stated in a report to clients on Friday that most of the details in the employment report were "a bit soft."

Nevertheless, Feroli believed that the report outlined a "gradually relaxing very tight labor market" that was consistent with the Fed's perfect anti-inflation narrative and should give the FOMC confidence to cut rates at some point in the second half of the year.

The upcoming CPI data will be the next catalyst for whether the Fed will actually cut rates in September. The market expects that the overall CPI annual rate for June will fall to 3.1% from the previous value of 3.3%, with a slight increase in the monthly rate to 0.1%. The core CPI annual rate and monthly rate will remain at 3.4% and 0.2%, respectively.

Institution believes that considering that the price sub-indexes of ISM Manufacturing and Non-Manufacturing PMI surveys are both decreasing, the risk of next week's CPI may be biased downward. Further slowing inflation may convince more market participants to bet on two rate cuts by the Fed this year, which could put pressure on the US dollar.

In addition, in Powell's semi-annual monetary policy testimony next week, it is almost impossible for him to change his dovish tone. This will make the dollar vulnerable and potentially face a greater correction.

Analysts pointed out that currently, the US dollar index has broken through the psychological level of 105. Any signs of further downward pressure on inflation before the US inflation data is released may further pressure the US dollar, which may have broad market implications. Currently, the market expects a 75% chance of a rate cut in September, and if inflation continues to decline, the likelihood of a rate cut may increase. Conversely, rising inflation could help the US dollar index return to above 105 and possibly reach 106 or even 107.

Jonathan Peterson, Senior Market Economist at Capital Macro, said in a report on Friday that he expects the dollar to weaken further as inflation pressures ease. This environment may continue to support gold prices.

Peterson wrote, "Next week's U.S. inflation data could strengthen the Fed's view that its interest rate cycle is over, and the potential upside risks to the dollar are now gone. Instead, the main risk facing the dollar now appears to be economic weakness, which may benefit from short-term bids in the event of volatile risk assets."

It is worth noting that Friday's non-farm payroll report also opened up a possibility that the importance of the labor market is beginning to exceed that of inflation data and become the main driver of Fed rate cuts.

As described by Powell last week, U.S. inflation has returned to an 'anti-inflation path.' The Fed's own forecast suggests that inflation will not truly reach its 2% target until the end of 2026, and perhaps more poignantly, the current weakness in the labor market. Last month, the Fed predicted that the unemployment rate would be 4% at the end of this year and only 4.2% by the end of 2025. Thus, the ongoing rise in unemployment rates may bring a sense of urgency for rate cuts to the Fed. Economists at TD Securities said in a report on Friday, "Although we still believe that the timing of the Fed's first rate cut largely depends on inflation data, signals of a continuous decline in labor market conditions and consumer spending weakness suggest that the Fed may more seriously consider its employment target in the coming months. We still have an optimistic view that the Fed will cut interest rates for the first time in September, as we expect core PCE to gradually decline to a level consistent with the 2% inflation target by then."

"Although we still think the timing of the Fed's first rate cut largely depends on inflation data, signals of a continuous decline in labor market conditions and consumer spending weakness suggest that the Fed may more seriously consider its employment target in the coming months. We still have an optimistic view that the Fed will cut interest rates for the first time in September, as we expect core PCE to gradually decline to a level consistent with the 2% inflation target by then."

Important event: beware of the euro's potential for another dramatic fall！

This week, the UK’s general election ended with the Labour Party led by Starmer winning a decisive victory. Although the market expected Labour to win significantly, the results exceeded expectations, even the most loyal Labour supporters were surprised. Starmer promised to rebuild Britain after years of turmoil, but warned that progress takes time.

Next week, the market will closely watch the actions of the new UK prime minister. The speech of the new finance minister, Rishi Sunak, will also be closely watched because maintaining a tight fiscal policy is crucial for controlling the level of UK debt. In the short term, funding for the National Health Service (NHS) seems to be the top priority for the Labour Party in terms of product structure, with operating revenues of 401/1288/60 million yuan respectively for 10-30 billion yuan products.

GBP traders may refocus their attention on economic data. On Thursday, the UK will release its monthly GDP data for May as well as industrial and manufacturing production data for the month. With the Labour Party winning a majority in parliament, the Bank of England may accelerate its easing process, which could have a negative impact on the pound in the medium term. Therefore, the improvement of UK May GDP is unlikely to significantly change the market's expectation of interest rate cuts by the Bank of England.

ING Groep said the muted response of the pound to the overwhelming victory of the UK Labour Party in the election was a clear sign that this outcome has been fully priced in by the market. ING analyst Francesco Pesole said in a report that what mattered most for the pound was the impact of a Labour government on Bank of England policy, but this has yet to materialize. He said that after a calm period leading up to the election, Bank of England officials should begin speaking again next week. He said the Bank of England's first rate cut could be in August, with two more cuts in 2024. "Consistent with this, we expect the pound to underperform in the summer months."

Looking at Europe, all eyes are now on the second round of voting in the French election. Although Le Pen's far-right National Front won the first round of voting, it failed to win a majority, which relieved the market.

All polls this week show that the National Front is unlikely to win a majority. However, if the party unexpectedly wins a majority, the market may continue to panic, possibly causing French bond yields to rise, similar to the situation before the election. This is definitely something that euro and European stock investors need to keep a close eye on.

Citigroup expects any respite-style rebound in the euro credit bond market to be "short-term" if the second round of the French parliamentary election ends without a parliamentary majority. After the first round of election results were announced last weekend, Citigroup economist and rate strategist Srikanth Sankaran said the final result would either be a parliament without a parliamentary majority or a majority for the National Front led by Le Pen.

Regardless of the outcome of the French parliamentary second-round elections on Sunday, the French stock and bond markets could face a more turbulent period. The French stock market rebounded this week, easing overall market pressure. Options markets also suggest that there may be less volatility when the stock market reopens on Monday.

But if the National Front led by Le Pen does not win an absolute majority, it means that France will be plunged into a political stalemate, hindering France's efforts to solve its ballooning budget deficit problem and ending Macron's pro-business reforms.

Since announcing early elections last month, the CAC40 index has performed the worst among major European indices, with the sell-off erasing the valuation premium that investors have given to French stocks over the past year. The widespread sell-off has made some companies more attractive because they have strong profit prospects. In the foreign exchange market, option data show that traders are not confident that the recent rise in the euro can be sustained and are still buying option products that hedge against the risk of a decline in the next month.