Cautious Investors Eye Key Risk Events

We appear to be seeing some risk aversion in the markets on Wednesday, with U.S. futures pointing lower ahead of the open, tracking similar declines in Europe.

I think there’s a couple of factors at play here, the first being that we’re coming off a decent run with the Dow and S&P now trading near 2016 highs. The other is that investors are looking ahead to a month littered with key risk events which may make investors edgy and markets testing for much of it. The U.K. referendum and June Federal Reserve decision are clearly the major risk events here but there are also a number of things in the lead up to these which may prompt some risk aversion in the markets.

This week we have the jobs report on Friday which could be influential when the Fed meets in a couple of weeks and so may put traders on edge. While the ECB is unlikely to announce further stimulus measures tomorrow, there is going to be a keen interest in the event given that the region still finds itself stuck in deflation territory despite the significant efforts of the central bank. Investors will want to know what, if anything, policy makers will be prepared to do should this continue in the coming months. This week’s OPEC meeting could also be quite interesting, although with oil prices where they are, I would be very surprised if any plans to cut or freeze production are announced.

We’ve seen some strong gains in the yen today after Japanese Prime Minister Shinzo Abe confirmed rumours that the sales tax hike will be delayed until October 2019. He also announced that there’ll be another round of fiscal stimulus in the Autumn, aimed at providing a boost to the economy which has been hampered by the global economy and uncertainty in China and other emerging markets. There was no mention of more monetary stimulus at this stage which may have otherwise offset some of the yen strength following the announcement although I imagine that won’t be far behind.

Still to come today we’ll get manufacturing PMIs from the U.S., both the final official reading and the ISM number. The numbers we’ve had so far today from China and Europe have been broadly in line or a little softer than expected which suggests the global environment of weaker growth is likely to continue into the second half of the year. The numbers from the U.S. are likely to tell a similar story.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam