May was a manic month for markets but brace yourself for June.
The fate of a historic summit between North Korea and the United States is unclear but there are other events on the radar to potentially convulse world markets — from Turkish elections to a Swiss referendum on so-called sovereign money.
Here are six events, listed chronologically, that investors will be watching in June:
POSSIBLE SWISS SHOCK — JUNE 10
Switzerland holds a referendum on June 10 on whether to introduce a sovereign money system that would shake up how its banks operate. The measure, if passed, would bar commercial banks from creating money every time they make a loan.
Supporters want the Swiss National Bank to be the only authority producing new money in the country. But the SNB argues the plan will damage its ability to conduct monetary policy.
If the referendum passes, investors could lose faith in the Swiss franc since money-printing will not be backed by assets. It could also hurt the profits of Swiss banks such as UBS and Credit Suisse.
Opinion polls show just 35 per cent support for the change, but as Brexit and the 2016 U.S. election showed, electoral upsets can happen.
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FED UP – JUNE 12-13 On June 12-13, the U.S. Federal Reserve should deliver what will be the second of three interest rate hikes expected for this year. Rates should rise to 1.75-2.0 per cent.
The question now is whether the Fed might squeeze in a fourth rate rise in 2018. That likelihood lifted the dollar in May to its best month since November 2016.
U.S. interest rates and Treasury yields are the main reference rate for global borrowing costs so Fed chair Jerome Powell’s post-meeting statement will be closely watched to gauge the central bank’s intentions.
The U.S. economy is enjoying its second-longest expansion since World War Two, with unemployment at a 17-year low. On the other hand, trade tensions with China pose risks to growth. A hawkish note from Powell could well fuel a fresh surge in the dollar and U.S. yields.
TRUMP AND KIM – TO MEET OR NOT TO MEET The fate of a historic U.S.-North Korea summit scheduled for June 12 is unclear. But U.S. President Donald Trump said this week he hopes the meeting – and a push for Pyongyang’s de-nuclearisation — will happen.
Hopes the talks would avert the North Korean nuclear threat had lifted world equities. A North Korean delegation will visit the White House on June 1 to give Trump a letter from their leader Kim Jong-un.
OPEC OIL TO FLOW AFTER JUNE 22? With Brent crude recently soaring to US$80 per barrel, a June 22 oil producers’ meeting in Vienna will be monitored by global policymakers and market players.
Since early 2017, members of the Organization of Petroleum Exporting Countries, Russia and some other non-OPEC producers have curbed oil output. The pact runs until the end of 2018 and the Vienna meeting will discuss whether to extend it.
But oil’s 30 per cent rise since end-2016 has fanned inflation fears — the U.S. 10-year bond yield recently surged to seven-year highs.
Oil has slipped somewhat after Russia and de facto OPEC leader Saudi Arabia discussed partly restoring output halted under the 2017 accord. But some other producers oppose raising production, so consensus could be hard to achieve.
Analysts reckon Brent will remain comfortably above US$70 a barrel this year.
TURKEY’S VOTE ON JUNE 24 Turkey, once counted among the most promising emerging markets, has suffered a massive currency and bond sell-off this year. It holds an election on June 24, with Tayyip Erdogan expected to be re-elected to a newly empowered executive presidency.
Erdogan has overseen strong economic growth in his 15 years in power but his plans to take greater control of the economy and monetary policy and a deepening crackdown on opponents criticized by rights groups and Western allies have unnerved many investors.
Polls show support for Erdogan’s AK Party and its nationalist partner at only around 50 per cent, however, so a loss of parliamentary control may offset some of his sweeping powers.
Turkey is struggling to stabilize the lira which has plunged as much as 20 per cent this year versus the dollar. A recent 3 percentage point emergency increase in interest rates was almost immediately undermined by Erdogan, a self-confessed “enemy of interest rates.”
The central bank meets formally on June 7 and could take further steps to stabilize the currency
BREXIT BREAK? With time running out for Britain to secure a deal before exiting the European Union next March, diplomats are hoping an EU summit on June 28-29 could break the deadlock.
British Prime Minister Theresa May remains stuck between a rock and a hard place, with Brexit supporters pushing to sever EU ties and others advocating keeping customs cooperation with the bloc. A government white paper due before the talks will outline plans for various sectors, including financial services and agriculture.
Uncertainty over Britain’s future EU ties continue to weigh on the economy and the pound, which is on course for a sixth weekly loss out of the last seven.
The EU says London is yet to come up with a viable solution for the Irish border — the fear is that reinstating a physical border, including for customs, between EU-member Ireland and Britain’s Northern Ireland province could revive violence there.