The US Federal Reserve (Fed) will hold its first meeting under the chairmanship of Kevin Warsh next week. Additionally, US President Donald Trump is expected to meet with other state leaders at the G7 summit in France.
On the other hand, the by-elections to be held in the north of England may be decisive for British Prime Minister Keir Starmer’s rule.
In addition to all these, meetings of other central banks may also increase activity in financial markets. One of these meetings will take place in Japan, where interest rates are expected to rise to 1 percent for the first time in more than thirty years.
1. NEW CHAIRMAN OF THE FED
Kevin Warsh will chair his first meeting as Fed chairman this week. Markets have begun to price the possibility that interest rates in the US will rise again in the coming months due to inflation that cannot be reduced.
Warsh and his team are not expected to take any steps at this meeting for now, but the entire focus of the market will be on the monetary policy text to be published on Wednesday and the press conference to be held by the new president. Investors will be looking to see if there is a significant change in the Fed chairman’s communication style or whether he offers new insights into how the Fed operates.
Authorities will also announce their projections regarding economic indicators and interest rates at this meeting. Investors will listen closely to these statements to see the extent of the disagreements among Fed officials.
Data released this week showed the effects of the energy bottleneck caused by the Iran war on inflation.
May consumer price index (CPI) in the USA recorded the fastest increase in the last three years. Despite this, President Trump repeated his demand for interest rates to be reduced.
2nd G7 SUMMIT
The main agenda items of the G7 Summit to be held in the picturesque town of Evian-les-Bains in France next week will be the wars in the Middle East and Ukraine.
Especially after Trump’s signals over the weekend that a peace agreement with Iran could be reached in Europe, all eyes were on this summit.
French officials, who have already shifted the summit date to fit into Trump’s “cage fight”-themed birthday plans to be held in the White House garden, keep expectations quite low. Like the hosts of other recent summits, they will consider Trump’s stay to the end of the event an accomplishment in itself.
Due to the war in the Middle East, Saudi Arabia, the United Arab Emirates, Qatar and Egypt were also invited to the summit. On the other hand, as European leaders continue their efforts to persuade the United States to continue its support for Ukraine against Russia, Ukrainian President Volodymyr Zelenskiy will also be among the participants.
Leaders will also discuss broader issues such as economic security, global imbalances and reducing dependence on China for rare minerals, but concrete outcomes at the summit are expected to be limited.
3. WILL BOJ INCREASE INTEREST RATES TO 1 PERCENT?
The Bank of Japan (BoJ), which will meet next Tuesday, is expected to increase interest rates by 25 basis points. If this move takes place, Japan’s benchmark interest rate will rise to 1 percent for the first time since 1995.
However, since the signals of this step were priced in the market long ago, the Japanese yen, which is in a difficult situation, is not expected to gain value. While the yen is still in the direct intervention zone, analysts say a much faster tightening cycle is needed to see a real recovery in the yen.
Given the protracted war in the Middle East and the BOJ’s cautious approach, rapid monetary tightening seems unlikely.
Another development that increases the difficulties is that BOJ Governor Kazuo Ueda, who was hospitalized this week, will not be able to attend the meeting. This would be the first time a BoJ governor has missed a monetary policy meeting since at least 1998.
4. STORMY DAYS IN ENGLAND
Next week will be very active and busy for the UK markets.
As Prime Minister Keir Starmer struggles to deal with rebel flags within the Labor Party and historic levels of voter dissatisfaction with his handling of the economy, a local election near Manchester in the north of England could pave the way for a serious rival for the prime minister’s seat.
A by-election in the town of Makerfield on June 18 could see Greater Manchester Mayor and Labor candidate Andy Burnham return to parliament. Marketers believe Burnham favors a more expansionary fiscal policy than Starmer.
The UK’s financial room for maneuver is already quite limited and borrowing costs are quite high. The 10-year government bond auction to be held on June 16 will show investors’ interest in British bonds in this tense political atmosphere.
Moreover, all of this will happen before the Bank of England’s (BoE) meeting on June 18, where it will probably keep interest rates constant, and before a series of important data from inflation to consumer spending are announced.
5. CONCERNS ABOUT EMERGING MARKETS
The oil supply shock caused by the Strait of Hormuz being closed to traffic affected all energy importers in Asia. But Indonesia is among the countries most affected by this. For this reason, the Central Bank of Indonesia is again in the focus of the markets before the interest rate decision it will announce next Thursday.
Increasing policy uncertainty, management concerns and loosening of fiscal discipline during the reign of Indonesian President Prabowo Subianto, together with the negative impact of global conditions, brought the currency, the rupiah, to historical lows and led to an outflow of billions of dollars from local markets.
Caught unprepared for the speed and extent of the decline, the authorities took an unexpected step this week, increasing the interest rate by 25 basis points and strongly intervening in the foreign exchange market. The question marks in the next period focus on the extent to which there will be an interest rate increase rather than whether there will be an increase.
On the other hand, the Central Bank of Brazil will announce its interest rate decision next Wednesday. What traders are wondering about is whether interest rate cuts will continue as inflation rises again. The policy rate was reduced to 14.5 percent with consecutive 25 basis point reductions in March and April. But it seems that the relaxation cycle is no longer as clear as before.
