Hit by a much stronger-than-expected U.S. jobs report, which signaled a potential further tightening of Fed monetary policy, the CAC 40 fell 0.3% to 8,218.2 points on Friday. Despite this, it managed to hold onto a 0.4% gain for the week, marking its third consecutive weekly advance.

The trend was heavier on Wall Street, however, where the S&P 500 posted a weekly decline of approximately 2.5% due to a correction in semiconductor stocks, ending a nine-week winning streak.

A necessary consolidation

Many commentators nevertheless view this as a logical consolidation, arguing that the bull phase driven by the AI craze was long overdue for a significant correction, given that the S&P had surged over 20% in just two months.

'The current correction is therefore quite healthy and should allow the bull market to regain momentum once it is over', noted Christopher Dembik, Investment Strategy Advisor at Pictet AM, this morning.

Traders are expected to remain cautious as Iran reportedly struck two Israeli military bases following a series of bombardments against its own territory, a scenario that further undermines the fragile ceasefire reached two months ago.

U.S. inflation test in focus

Market participants are also likely to limit their exposure ahead of the week's two primary tests: U.S. CPI inflation data due on Wednesday and the ECB's announcements on Thursday.

The U.S. inflation figures appear particularly critical ahead of the next Federal Open Market Committee meeting, the first under the leadership of its new Chair, Kevin Warsh, scheduled for June 16-17.

According to consensus estimates, the Consumer Price Index is expected to have accelerated to 4.2% in May, up from 3.8% in April, reaching its highest level since April 2023.

Figures exceeding expectations would reinforce the current view that interest rates must remain elevated for a prolonged period.

Growing bets on monetary hawkishness

According to the CME FedWatch tool, rate futures are now pricing in an approximately 72% probability that the Fed will raise its benchmark rate by 25 to 75 basis points by the end of the year. The probability of a status quo stands at 27%, while the likelihood of a rate cut is considered marginal at less than 1%.

While the recent energy shock has revived the inflationary specter of 2022, analysts believe that slowing demand should limit the scale of the price surge this time.

'Unlike in 2022, inventories are better calibrated, demand for goods has cooled, the labor market is balanced, and fiscal policy is proving less expansionary', BofA points out.

'Consequently, even if inflation could prove higher than our current forecasts, we do not anticipate a peak of 9.0% year-on-year as seen in 2022', the investment bank added.

ECB faces the prospect of a 'precautionary' hike

This is unlikely to deter the ECB from opting for a 25-basis-point hike in its key rate on Thursday, with the deposit rate expected to rise from 2% to 2.25%.

Anticipation of the Frankfurt-based institution's decisions and forecasts is prompting further caution, especially since last week's announcement of accelerating Eurozone inflation strengthened the narrative for a 'precautionary rate hike'.

Its new growth and inflation projections will be decisive. Assuming oil prices do not quickly return to pre-war levels, inflation forecasts for 2026 and 2027 will likely need significant upward revisions, further bolstering the case for continued monetary tightening.

Oracle to provide a breath of fresh air?

Another key event will be Oracle's quarterly earnings report, scheduled for Wednesday evening. This should reveal whether the California-based enterprise software giant still expects a sharp acceleration in growth in the coming months as numerous AI-related infrastructure projects get underway.

Following a more than 20% jump in revenue last quarter, analysts expect the cloud specialist's growth to reach 27.6% in the current quarter. This outlook must be confirmed by the Santa Clara-based group, which counts OpenAI among its clients and has seen its share price rise 40% this year.

Oil prices soar, yields remain tense

Bond yields are virtually unchanged ahead of the U.S. inflation data and ECB decisions. In the U.S., the ten-year Treasury note yield stands at 4.5360%.

At 3.04%, the German Bund yield is under additional pressure from the now almost certain anticipation of an ECB rate hike on Thursday.

The euro, which rebounded slightly on Friday after four consecutive sessions of gains against the dollar, is showing weakness again on Monday morning, trading around 1.1520 against the greenback.

With renewed tensions in the Middle East, the oil market is rising sharply, with Brent gaining 4.4% to 97.2 dollars per barrel and West Texas Intermediate (WTI) crude rising over 4.2% to 94.3 dollars.