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Abu Dhabi, UAESunday 24 June 2018

What's ahead in 'most important week for world economy'

Bank of America report outlines key issues, each of which carries the potential to propel financial markets and shape the outlook for global growth

The Singapore skyline. The historic meeting between US President Donald Trump and North Korean leader Kim Jong-un in the city on June 12 is one of several issues that may impact the global economy this week. (Photo by Chris McGrath/Getty Images)
The Singapore skyline. The historic meeting between US President Donald Trump and North Korean leader Kim Jong-un in the city on June 12 is one of several issues that may impact the global economy this week. (Photo by Chris McGrath/Getty Images)

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

That’s what Bank of America 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 US President Donald Trump broadsiding allies via Twitter, undermining the bloc and potentially causing fresh friction over trade.

Tuesday

Mr Trump and North Korea leader Kim Jong Un convene in Singapore for their on-off summit, the first such meeting ever. Mr 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 US economy is getting.

UK 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 policymakers 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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Read more:

Markets take 'catalogue of risks' in their stride

China's Xi hails free trade and defends WTO

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Wednesday

The US 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.

Also on Wednesday, 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 UK, 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 programme 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.

Vladimir Putin, the Russian president, and Mohammed bin Salman, Saudi Arabia's crown prince, meet at the opening game of the World Cup football 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.

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 (BOJ) 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.

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