Global markets were broadly steady on Monday, despite ongoing conflicts in the Middle East. The Nikkei led Asian bourses with a 1.26% while European indexes also opened higher. Even with Israel and Iran continuing to exchange military strikes, investor sentiment remained resilient. US equity futures are also treading water, suggesting cautiousness rather than panic ahead of a high-stakes week for global monetary policy.
Oil prices ticked higher on geopolitical concerns but quickly settled back into Friday’s range, indicating that markets are becoming more conditioned to the risk headlines unless there is a major disruption to oil flows. Meanwhile, Gold gave back early gains after briefly spiking near a two-month high. The pullback reflects a modest unwinding of haven flows as traders turn their focus to upcoming central bank decisions and data rather than reacting solely to geopolitical developments.
This week will be busy, with four major central banks—Fed, BoJ, BoE, and SNB—set to announce policy decisions. The backdrop is particularly complex: markets are navigating geopolitical flare-ups, looming tariff deadlines, and a busy calendar of economic data including retail sales, inflation, and employment reports. Investors will be looking for clues not only on rate direction but also on how policymakers assess the broader risk outlook.
Technically, further rise is expected in Gold as long as 3376.70 minor support holds, for retesting 3499.79 high. Decisive break there will resume larger up trend. Nevertheless, break of 3376.70 will turn focus back to 3293.35 support. Firm break there will argue that corrective pattern from 3499.79 is extending with another falling leg.
In Asia, Nikkei rose 1.26%. Hong Kong HSI is up 0.84%. China Shanghai SSE is up 0.35%. Singapore Strait Times is up 0.02%. Japan 10-year JGB yield rose 0.06 to 1.462.
ECB’s Nagel warns against premature policy commitment
German ECB Governing Council member Joachim Nagel struck a cautious tone at a conference today, warning against locking in any specific policy path amid persistent global uncertainty.
Markets currently price in only one more rate cut by year-end. But Nagel resisted endorsing that outlook, stressing that rapidly evolving conditions make it unwise to pre-commit.
“We must keep our eyes and ears open for the risks to price stability,” he said, pointing specifically to current developments in the Middle East as a source of heightened uncertainty.
Nagel also offered a downbeat assessment of Germany’s near-term prospects, forecasting stagnation in Q2 and flagging the global trade war as a significant drag. He estimated that escalating trade tensions could shave as much as 0.75 percentage points off German growth over the medium term.
ECB’s de Guindos sees inflation risks balanced, Euro strength not a concern
In a Reuters interview, ECB Vice President Luis de Guindos downplayed concerns over a return to the ultra-low inflation era of the 2010s, despite the recent strengthening of Euro. De Guindos acknowledged that these developments could weigh on headline inflation but emphasized that “the risk of undershooting is very limited.” He maintained that inflation risks are now “balanced”. Euro’s recent appreciation was neither rapid nor volatile, and therefore “not going to be a big obstacle” at 1.15 level.
De Guindos expressed confidence that inflation will rebound after dipping to 1.4% in Q1 2026, citing a still-tight labor market and sustained wage pressures. Compensation growth, supported by union demands, is expected to remain near 3%. This aligns with ECB’s medium-term outlook of returning inflation to its 2% target.
While stopping short of explicitly endorsing a pause, de Guindos indicated that market pricing for just one more rate cut, potentially later this year, was consistent with ECB President Christine Lagarde’s latest messaging.
“Markets have understood perfectly well what the President said about being in a good position,” he noted, adding that investors now correctly anticipate that the ECB is nearing the end of its easing cycle.
NZ BNZ services slumps to 44.0, economy returning to recession
New Zealand’s services sector took a steep turn downward in May, with the BusinessNZ Performance of Services Index plunging from 48.1 to 44.0, the lowest reading since June 2024. Activity and new orders led the decline, falling from 46.7 and 50.2 to 40.1 and 43.2 respectively, as businesses reported broad-based weakness in demand. Employment also edged down from 47.9 to 47.2.
Sentiment on the ground paints an equally grim picture. Negative commentary from survey respondents rose to 65.6%, up from 61.8% in April. Businesses cited reduced consumer spending, revenue declines, and heightened uncertainty over inflation, interest rates, and the economic outlook. Many reported that customers are delaying decisions and becoming more cautious in their spending—mirroring trends typically seen during periods of economic stress.
BNZ Senior Economist Doug Steel noted that the PSI collapse closely follows the earlier fall in the Performance of Manufacturing Index, reinforcing signs of widespread economic fragility. With both key sectors now contracting, concerns are rising that New Zealand may be “returning to recession”.
China’s retail sales shine with 6.4% yoy growth, but production and investment drag continues
China’s latest economic data for May paints a mixed picture. Industrial production rose 5.8% yoy, falling short of the expected 6.0% and reflecting lingering weakness in external demand. This comes on the heels of a sharp -34.5% yoy drop in exports to the US, despite the mid-May rollback of some tariffs. The full impact of reduced tariffs is expected to emerge more clearly in June though.
In contrast, retail sales provided a bright spot, jumping 6.4% yoy and beating forecasts of 5.0% yoy. The rebound was supported by the government’s aggressive push to boost consumer spending through its appliance and vehicle trade-in program. The Ministry of Commerce reported that the campaign has already generated over CNY 1.1m in sales this year.
However, fixed asset investment remains a drag, growing only 3.7% ytd yoy versus expectations of 3.9%. The persistent weakness in property investment, down 10.7% in the first five months of the year, highlights ongoing strain in the real estate sector.
Four central banks, one volatile week
Markets are heading into a packed week, with four major central banks—Fed, BoJ, BoE, and SNB—set to announce policy decisions, all against the backdrop of heightened geopolitical risk, trade policy uncertainty, and a flurry of critical economic data. Alongside the rate decisions, key data including retail sales, inflation, and job report will further shape expectations.
Fed is widely expected to hold rates steady at 4.25–4.50%, with near-universal pricing in the futures market reflecting that consensus. There is little urgency for Fed to act, given the still-resilient labor market and the fiscal support flowing from new tax and spending legislation. However, the path ahead is anything but straightforward. While recent CPI and PPI data showed no clear sign of tariffs filtering through, the risk of a renewed trade war is growing. Whether tariffs are rolled back or re-escalated after the 90-day truce expires will heavily influence Fed’s next move. A Reuters poll shows economists split—55% expect rate cuts to resume in Q3, while 42% forecast cuts only in Q4 or later.
Meanwhile, oil prices are emerging as a new threat to the disinflation trend. If the Middle East conflict worsens, a sustained energy rally could delay the Fed’s easing cycle further. That’s a major variable markets will be watching, especially if headline inflation picks up again. Fed Chair Powell will likely emphasize data dependency while avoiding strong forward guidance, leaving markets to interpret incoming economic and geopolitical developments on their own.
BoJ is also expected to keep its policy rate unchanged at 0.50%. With trade tensions high, the odds of another hike this year have dropped sharply. A Reuters poll found 52% of economists now expect no further move in 2025, while over three-quarters foresee one 25bps hike by March 2026. If trade talks stabilize and global demand revives, the BoJ could reconsider tightening, but for now, the path of least resistance is to wait and observe.
BoE meets amid growing evidence of domestic weakness, including softer-than-expected GDP and labor market data. Still, policymakers are expected to hold the Bank Rate at 4.25% this week. The BoE has been moving cautiously and gradually, citing lingering inflation and wage pressures. The Monetary Policy Committee remains divided: two members pushed for a 50bps cut at the last meeting, while others voted to hold. A Reuters poll shows most economists expect 25bps cuts in both Q3 and Q4, bringing the rate down to 3.75% by year-end. However, that easing path will also hinge on upcoming inflation data, due this week.
Among the four, SNB stands out as the only one likely to ease. A 25bps cut to 0.00% is widely anticipated as SNB confronts rising deflationary pressure. May’s consumer price index fell -0.1% yoy, the first negative print in over four years. Coupled with the strong Swiss Franc, which has appreciated significantly amid geopolitical risk flows, deflation risks are intensifying. Markets are even speculating that the SNB could pre-emptively cut by 50bps or signal readiness to re-enter negative territory if warranted.
Beyond the rate decisions, other important central bank communications are scheduled too. BoC will release its summary of deliberations, and the BoJ will publish minutes of its recent meeting—both likely to offer insight into policy calibration ahead. Meanwhile, key economic data including retail sales from the US, UK, and Canada, UK CPI, and Australian employment figures.
USD/CAD Daily Outlook
Daily Pivots: (S1) 1.3550; (P) 1.3601; (R1) 1.3635; More…
USD/CAD’s decline continues today and intraday bias stays on the downside. Current fall from 1.4791 should target 100% projection of 1.4414 to 1.3749 from 1.4014 at 1.3349. On the upside, through, break of 1.3650 minor resistance will turn intraday bias neutral first.
In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.
