The week ahead
UK monetary policy, oil production and the health of the eurozone will be in the news next week. Let’s take a look at the events that will be moving the markets.
1) The Bank of England’s June policy meeting
The Bank of England meets next week on Thursday 21 June to announce its latest interest rate decision. Members of the BOE’s Monetary Policy Committee are widely expected to keep rates at 0.5%. Markets had been looking for a rate hike in August, but those expectations are dwindling after the latest official figures showed a fall in wage growth, despite a fresh drop in unemployment.
Inflation, as measured by the consumer prices index (CPI), also stayed at 2.4% in May for the second month running, confounding expectations among economists who were expecting the rate to increase to 2.6%.
Dwindling rate hike expectations are putting negative pressure on GBP crosses. Any more signs that the BoE is dithering over the August rise will likely heap more losses on sterling. The FTSE 100 index, which tends to have an inverse relationship with the pound, is also under pressure over fears of an escalation of the Trump trade war.
2) There’s an OPEC meeting
Oil markets are on tenterhooks ahead of the meeting of OPEC and non-OPEC producers in Vienna on Wednesday 22 June. Saudi Arabia, the world’s most powerful oil producer, will be calling the shots. OPEC and a group of non-OPEC producers, including Russia, have observed a deal struck in November 2016 to curb oil production in a bid to support prices.
This policy has boosted oil prices to around $76 for Brent and $66 for West Texas Intermediate (WTI). But there is pressure from some quarters, including Donald Trump, to increase production to stop prices rising too sharply, and Saudi Arabia and Russia are reportedly keen that the output caps are reduced.
If the taps start opening, then oil prices will drop.
3) Mario Draghi is speaking again
When the European Central Bank’s president spoke this week, on Thursday 14 June, it precipitated the biggest fall in EUR/USD since June 2016. It came after the ECB announced that it will end its massive bond-buying stimulus programme, worth €30bn a month, in December. On the face of it this is good news for the euro. But the bank suggested there will be no rate hike before the end of summer 2019, and lowered its growth forecasts for 2018. Draghi’s statements in the accompanying press conference were also cautious.
His speech at the ECB’s conference of central bankers in Sintra, Portugal, on Monday 18 June may contain some more snippets on how the bank’s forward guidance on policy rates might evolve.
Eurozone consumer confidence survey data from June, published on Thursday, and eurozone PMI figures on Friday 22 June – two important indicators of the health of the region’s economy – also have the potential to impact the single currency.
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