business

Brace for the World Economy’s Most Important Week of the Year

Updated on
  • Trump meets Kim, Putin meets MBS, U.K. MPs vote on Brexit bill
  • Fed to hike, ECB to update bond plan, BOJ to keep stimulating
Bloomberg’s Kathleen Hays previews the meetings of the Fed, the ECB and the BOJ to be held this week.

The world economy’s most important week of the year?

That’s what Bank of America Corp. strategists asked clients in a report ahead of five days of presidential standoffs, trade tensions and central bank meetings.

Each carries the potential to propel financial markets and shape the outlook for global growth after signs it slowed in the first quarter.

So here’s what to watch for:

MONDAY

Investors get their first opportunity to pass judgment on what happened at the summit of leaders from the Group of Seven. The gathering ended with President Donald Trump broadsiding allies via Twitter, undermining the bloc and potentially causing fresh friction over trade.

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TUESDAY

Trump and North Korea leader Kim Jong Un convene in Singapore for their on-off summit, the first such meeting ever. Trump last week predicted “great success” and said it’s possible he could sign an agreement with Kim to formally end the Korean War. Back in Washington, the government releases a monthly report on inflation that will be a key gauge of how hot -- or not -- the U.S. economy is getting.

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U.K. Prime Minister Theresa May’s flagship Brexit legislation returns to the lower House of Commons after receiving a battering in the upper House of Lords, where it was amended 15 times. Ministers will be trying to overturn most of those defeats, with a combination of compromises and attempts to win rebel pro-EU lawmakers round. In two days of debating and votes on Tuesday and Wednesday, the key questions are about what kind of vote Parliament gets on the final Brexit deal, and whether Britain should be trying to stay in a customs union.

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The Balance of Power

Given Theresa May’s narrow working majority, a handful of Tory backbenchers are enough to make or break her Brexit plans

Source: U.K. Parliament

Note: While there are 650 members of Parliament, the speaker and his three deputies don’t vote, while Sinn Fein’s seven lawmakers don’t take up their seats. One seat is vacant, awaiting a special election. Taking this into account, the total falls to 638 voting MPs. Party tallies include suspended lawmakers, who are still able to vote.


WEDNESDAY

The U.S. Federal Reserve is set to hike its benchmark interest rate for a second time this year. Chairman Jerome Powell holds a press conference, and he and his colleagues will also publish new projections which could show them tilting toward four increases this year as a whole, rather than the three they hinted at in March. Elsewhere, Argentina’s central bank is expected to keep its benchmark rate 40 percent as it tries to stabilize the peso.

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Growth Paths

The World Bank expects GDP growth to moderate in coming years

Source: World Bank

Note: 2017 growth figures are estimates, and data for 2018-2020 are forecasts. All numbers are percent change from previous year.

Also today, Italy’s auction of debt will draw scrutiny by handing investors another opportunity to react to the election of the populist government and its promises of hefty spending increases. The risks for the securities are already seen in the fact that the gap between Italian 10-year yields and those of Spain is at its widest since 2012. In the U.K., inflation data will help the Bank of England determine whether to raise interest rates.

THURSDAY

The European Central Bank is shifting closer to the end of its bond-buying program with Thursday’s meeting of policy makers poised to hold the first formal talks on when and how to do it. About a third of respondents to a Bloomberg survey of economists predicted President Mario Draghi will set an end-date for purchases today, while 46 percent said he will wait until July to reveal details.

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Unwinding Stimulus

Milestones on the ECB's path toward monetary-policy normalization

Source: Bloomberg survey of economists conducted June 1-7

Timeline shows dates by when most economists predict a given action.

Vladimir Putin, the Russian president, and Mohammed bin Salman, the powerful Saudi crown prince, meet at the opening game of the World Cup soccer tournament. The encounter could influence the global oil market given it comes a week before a crucial OPEC meeting in Vienna, providing a last-minute chance for the two leaders to iron out a possible oil-output increase.

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China releases retail sales and industrial production data which will shed light on the strength of the world’s second largest economy.

FRIDAY

The Bank of Japan is likely to end the week exactly where it started with no tightening of monetary policy on the agenda. The BOJ is still buying vast quantities of Japanese government bonds and will have been encouraged to keep doing so by data showing its still far off its 2 percent inflation target and that the economy shrank in the first quarter.

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BOJ Increasingly Dominant

Had 43% of outstanding bonds at the end of 2017

Source: Bank of Japan Flow of Funds report

Note: JGBs defined as central government securities and FILP bonds (not T-bills), at market value.

June 15 is the deadline for the U.S. to publish the final list of Chinese products subject to $50 billion in tariffs, which could be imposed shortly after. Also today, the Russian central bank sets interest rates with economists currently leaning toward no change in the 7.25 percent benchmark although there is a chance of a cut.

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— With assistance by Emma Ross-Thomas, and Paul Dobson

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