Weekly Forecast: Geopolitics, Monetary Policy In Focus
The global financial markets will see plenty of action this week as geopolitics, monetary policy and cyber security disrupt what is usually a quieter period for financial assets. For non-correlated assets such as cryptocurrencies, developments surrounding institutional adoption, regulation and cyber security will continue to shadow market prices.
Trump Touches Down in Singapore
U.S. President Donald Trump has arrived in Singapore for a high-profile summit with North Korea’s Kim Jong-un. After months of volatile diplomacy, both leaders are scheduled to hold historic talks in the Southeast Asian city-state on Tuesday.
Initial talks are expected to be high level and President Trump believes it “will take a period of time” to achieve a deal. “At a minimum, I do believe, at least we’ll have met each other,” Trump told reporters Saturday.
The apparent thawing of geopolitical tensions in Korea has lifted stocks in recent weeks. However, U.S. officials have cautioned against hopes for a major agreement in Singapore as Washington and Pyongyang remain at odds on a number of issues.
The U.S. Federal Open Market Committee (FOMC) will coalesce in Washington on Tuesday for a two-day policy meeting. According to 30-day Fed Fund futures prices, the likelihood of an interest rate hike on Wednesday is above 91%.
The June rate verdict will be accompanied by a quarterly summary of economic projections covering GDP, inflation and unemployment. The Fed’s now infamous “dot plot” chart will also lay out the projected path of rate hikes for the next several years.
Stocks and currency markets have reacted sharply to speculation that the Fed will hasten its tightening path later this year. Although a rate hike is expected on Wednesday, the Fed’s language and forward guidance will be closely monitored by investors.
Cryptocurrencies Search for Direction
Crytocurrency markets snapped a four-week losing streak on Friday but have since fallen back into bearish territory after South Korea’s Coinrail exchange suffered a security breach. The attack targeted lesser-known altcoins NPXS, NPER and ATX, prompting Coinrail to direct 70% of its crypto balance into cold storage.
The attack triggered a sharp decline in cryptocurrency prices, with the market’s total capitalization falling by $23 billion in a matter of hours. The heist could shadow the market’s recovery at a time when security and regulation risks continue to influence investor sentiment.
Crypto-market volumes continue to hover in the lower end of their yearly range, with turnover amounting to just $15 billion on Sunday. Daily trading volumes were limited to just $14 billion to $18 billion last week, which partly explains the market’s tepid recovery.
The economic calendar features several high-profile data releases this week. Below are the most pressing.
The spotlight is on the U.K. Monday as National Statistics reports on industrial production, manufacturing production and the goods trade balance for April.
U.K. data releases continue on Tuesday with reports on employment and average earnings. Elsewhere in Europe, ZEW will report on institutional investment sentiment in Germany and the broader Eurozone.
Shifting gears to North America, the U.S. Labor Department will release the consumer price index (CPI) for May. The report is expected to show anther uptick in consumer prices, which could strengthen the Federal Reserve’s hand in raising interest rates.
The U.K. will release a deluge of inflation scorecards on Wednesday, including consumer prices, producer prices and retail inflation. Meanwhile, the European Commission will unveil the latest industrial production and employment data for the 19-member currency bloc.
In the United States, FOMC policy decision will be released at 2:00 p.m. ET.
Global data flows will make headlines on Thursday, beginning in Australia with May employment data. The Chinese government will also unveil the latest data on retail sales, industrial production and fixed-asset investment.
In Europe, the German government will release final inflation numbers for the month of May. Consumer inflation in Europe’s largest economy is expected to have risen 2.2% annually.
In terms of monetary policy, the European Central Bank (ECB) will deliver a highly anticipated interest rate announcement on Thursday. The central bank has given strong indication that its record bond-buying program will conclude this year, though no change in policy is expected until July.
In the United States, the Commerce Department will report on retail sales, which is a close proxy of consumer spending.
Final Eurozone CPI data will make headlines in the final session of the week.
In Washington, the Federal Reserve will deliver its monthly report on industrial production and capacity utilization.
Separately, the University of Michigan will deliver its preliminary consumer sentiment index for June.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.