© Reuters. A London bus passes by the Bank of England building in London, Britain, November 3, 2022. REUTERS/Toby Melville/File Photo
(Reuters) – The Bank of England is facing a storm in the gold bond market, while Turkey’s new governor is expected to raise interest rates sharply at central bank meetings next week.
There is fresh reading about the health of the global economy in the near future as key policymakers take off, with US Secretary of State Antony Blinken heading to Beijing and London and Paris hosting some major summits.
Here’s a look at next week’s on the markets from Kevin Buckland in Tokyo, Louis Krauskopf in New York, and Amanda Cooper and Karen Stroecker in London.
1 / The Nightmare on Thread Street
The Bank of England may be facing its worst nightmare – an economy barely growing and a 1970s-style wage-price spiral. Earnings are growing at their fastest rate ever — barring the pandemic. The job market is tight, the cost of living is high, and workers, in both the public and private sectors, are pressing for better wages to make ends meet.
Add to that a sharp rise in government borrowing costs to their highest levels since 2008 and the pressure being put on an already ailing mortgage market and the central bank’s situation looks unenviable.
Markets are showing traders are betting on a one in five chance that the Bank of England will raise interest rates by half a point next week, up from near zero at the start of June. Even if he raised the bank that much, would it do the trick?
2 / Economic examination
A host of hawkish noises from major central banks – including the Fed – has once again raised questions about how much central bank tightening is accelerating the global slowdown.
Purchasing Managers’ Indexes (PMIs) from around the world that will provide fresh insight into demand trends and evidence of the health of the manufacturing sector in the US, Europe and Japan so far in June.
The May reports showed bad news in several major regions. US manufacturing contracted for the seventh month in a row, as new orders continued to fall amid rising interest rates. Eurozone PMIs in May moved into contraction territory – another grim sign for the region, which entered a technical recession in the first quarter of 2023.
3/ An unwelcome surprise
After the hawkish surprises at the past two RBA meetings, investors will be keen to analyze the June meeting minutes on Tuesday to gauge the risks of the third meeting.
Right now, money markets are putting the odds up, or hold, at a July coin toss, but either way, by November last, traders expect set prices to be 50 basis points higher than now.
With liquidity already high in a decade, and Reserve Bank of Australia Governor Philip Lowe prioritizing reining in stubborn inflation over preserving jobs, recession risks are rising. The massive May employment report could also provide more leeway for the RBA to tighten interest rates further.
Investors in Australia need to watch major trading partner China closely, too, as the post-COVID recovery is already picking up and Sino-US tensions are heating up.
4/ Hit the road
The team downplayed the significance of the first visit to Beijing in five years by a US secretary of state that could result in a detente between the world’s two largest economies by senior diplomat Anthony Blinken, who – according to Chinese state media – is expected to visit on Sunday. June 18-19.
There is cautious optimism in the air in London as well, as Western policymakers gather June 21-22 at the Ukraine Recovery Conference to address issues from short-term financing to long-term reconstruction costs. The event takes place after the breach of a massive Soviet-era dam on the Dnipro River, which experts warn will have a huge impact not only on Ukraine but also on global food security.
Meanwhile, in Paris, the new Global Finance Compact on June 22-23 is the summit appearance of newly appointed World Bank President Ajay Banga, who will be joined by heads of state from around the world to discuss how financing, particularly on climate issues, can be organized. to some of the poorest countries.
5/ The only way is up
Another appearance on the agenda is Hafiz Gay Erkan – the newly appointed governor of the Central Bank of Turkey, who is hosting her first meeting on Thursday.
Analysts at the leading investment banks expect it to start raising interest rates – currently at 8.5% – to anywhere from 25% as part of a major reset of the country’s economic policies. This is still somewhat behind the rate of inflation, which fell below 40% in May.
Investors are keen to see how deep and lasting these changes will be after President Recep Tayyip Erdogan scored an election victory in late May. Erdoğan said that newly appointed Finance Minister Mehmet Simsek would quickly take unspecified steps with the central bank, but it would be wrong to suggest that he himself had changed his views on interest rates.
