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Volatility Invades

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Geopolitical drivers and economic data translated to greater levels of volatility than seen in previous months as low liquidity saw substantial intraday fluctuations. While US GDP was a key factor in the US dollar, political developments across Europe continue to play a dominant force in market momentum.

Last Week

Aside from the wrangling over Greece, US GDP was the dominant force behind market momentum in the prior week. Although not as positive as previously hoped, the -0.20% first quarter GDP print has set the wheels in motion for a September rate hike, a point that was corroborated by FOMC Member Jerome Powell as the Federal Reserve prepares financial markets for liftoff. Other data points bolstered the case for raising rates sooner including blockbuster existing home sales and soaring new home sales. Also helping the argument for interest rate normalization was stronger spending data and rising incomes. Across the Atlantic, Europe has seen manufacturing metrics improve on the back of the weaker Euro, with French manufacturing managing to climb back into expansionary territory. However, the economic outlook for the nation remains fragile after the number of unemployed individuals rose for the 80th straight month. Chinese manufacturing ticked slightly higher, but the HSBC manufacturing PMI remained in contractionary territory despite the gains. Meanwhile, Japan continues to face difficulties in achieving its inflation goals with the Bank of Japan forecasting a rebound towards the goal of 2% in 2016-2017 depending on the outlook.

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The Week Ahead

Aside from the tumult ahead as the impact of Greece is felt across global markets in the coming sessions, the week ahead will be focused on the US unemployment situation with the approach of US nonfarm payrolls and the unemployment rate. Early indications show that expectations are for 220,000 jobs added in the latest reporting period with the unemployment rate forecast to drop to 5.40% from 5.50%. Payroll data will be released on Thursday instead of Friday owing to Independence Day in the United States. Aside from US centric data, the United Kingdom will be released GDP figures for the first quarter on Tuesday with expectations for the final revision to print at 0.40% versus 0.30% prior while annualized growth is estimated to reach 2.50%. Manufacturing figures from across the globe will be the other main driver of momentum, with China, Japan, Euro Area, US, and the UK releasing PMI data. Other important events to watch for include inflation numbers and the unemployment rate from the Euro Area, both of which are forecast to hold constant. Services PMI figures will also be disbursed from the Euro Area and UK although to a lesser degree of importance than other upcoming fundamental events.

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