This Week's Market Strategy - June 4, 2024 (Tuesday)

The core Personal Consumption Expenditures (PCE) inflation rate, which FOMC officials focus on for inflation data, came in at 0.2% month-over-month, below the expected 0.3%. We thought inflation would remain stubborn and cause serious issues, but this PCE was a negative surprise! With this, US long-term interest rates plummeted, and USD/JPY also fell sharply to 156.56 yen at one point. The week started in the 157 yen range, but after a brief moment, yen buying emerged from London time yesterday, bringing it temporarily below 156 yen.

The employment report will be released on Friday this week.

Non-farm payrolls are expected to increase by 180,000. Recently the results have consistently exceeded expectations, but last month saw a rare decline. With such massive immigration inflows, employment numbers tend to rise, but what will happen this time?

If it beats expectations, USD/JPY seems likely to have one final rally attempt. A retest of 160 yen!

However, there may be intervention by authorities again at the 160 yen level...

Gold has been in a stalemate around $2,350 last week, waiting for catalysts? The formula of FRB rate cut expectations (=dollar weakness) driving gold purchases (gold surged sharply last night with the long-term interest rate plunge!) and no rate cuts driving gold sales remains intact for now. Gold's long-term outlook is still bullish, but short-term is bearish. We want to buy on further declines.

WTI crude fell sharply as OPEC+ extended coordinated production cuts through the end of next year at the weekend meeting! The voluntary production cuts of 2.2 million B/D are to be phased out starting in October! We view the downtrend continuing for another 3 weeks or so from a medium to long-term perspective.

In summary, for USD/JPY, buy on dips to 155 yen with an upside target of 160 yen. For gold, buy below $2,200. For crude oil, we're looking for short-term selling opportunities?