Take Five: Middle East takes centre stage

Reuters

17 hours ago

June 13 (Reuters) - Middle East tensions are escalating sharply and propelling oil prices higher as a raft of major central banks, led by the U.S. Federal Reserve, make interest rate decisions and G7 leaders meet in Canada.
Here's a look at what's coming up for world markets in the week ahead from Rae Wee in Singapore, Lewis Krauskopf in New York, and Lucy Raitano, Dhara Ranasinghe and Marc Jones in London.
Israel's strikes on Iran mean another of the major geopolitical tail risks investors have long been worried about has just become a reality.
Markets will be closely following how Tehran - which has seen many of its proxies in the region weakened - retaliates and what the world's top powers do in the coming days.
The initial reaction has been a spike in oil prices, a drop in stocks and a safe-haven rally spanning gold to government bonds. How the sixth round of U.S.-Iran nuclear talks scheduled to be held on Sunday in Oman will evolve is also unclear.
That all has implications for the world economy, and there's likely to be more volatility unless the situation calms down rapidly.
The question of whether the Fed is more worried about inflation or labour markets tops the agenda for investors looking for greater clarity on the interest rate outlook amid the renewed tension in the Middle East and its implications for oil prices.
The U.S. central bank is expected to hold rates steady on Wednesday but will offer projections on monetary policy and the economy for the first time since March, when overall estimates of inflation and unemployment were lifted.
Markets anticipate roughly two 25 basis-point cuts by the end of the year - the first likely in September - a view bolstered by Wednesday's benign inflation report.
Meanwhile, the Fed and chair Jerome Powell remain under pressure to lower rates from President Donald Trump, who says a decision on the next Fed chair will be made soon.
Tuesday's May retail sales numbers, meanwhile, could show how tariffs may be affecting consumer spending.
The Bank of Japan kicks off its two-day policy meeting on Monday, at a crucial time for investors seeking guidance on the BOJ's rate trajectory and bond tapering plans.
Policymakers are expected to stand pat on rates, but the devil will be in the detail of its statement and Governor Kazuo Ueda's news conference. The BOJ has vowed to keep raising rates if underlying inflation approaches its 2% target, but the path ahead has become less certain.
A trade deal with Washington remains elusive, and an unwelcome spike in long-end Japanese government bond yields in May complicates matters.
The latest bout of volatility in the JGB market has triggered a slew of responses from policymakers seeking to soothe market concerns about worsening government finances.
The flurry of interest rate decisions continues in Europe, with central bank meetings scheduled in Sweden, Switzerland, Norway and the UK.
Sweden's Riksbank will kick things off on Tuesday, with markets betting on a 25 bps rate cut.
Thursday is busy with Norges Bank expected to hold rates, while the Swiss National Bank (SNB) is seen slashing rates by 25 bps, with an outside chance of a 50 bps cut.
Swiss inflation turned negative in May, fuelling discussion around whether Switzerland could be the first big economy to return to negative rates.
Meanwhile, weak UK jobs data raised the prospect of more Bank of England (BoE) cuts through the rest of 2025, but markets still expect no rate change on Thursday.
A UK spending review on Wednesday brought into focus worries over the fiscal outlook, while data on Thursday showed economic output fell sharply in April.
Geopolitics, trade and much more will be on the table at the Group of Seven's June 15-17 summit in Alberta, Canada.
A U.S./China agreement on a framework to put their trade truce back on track is positive. Japan, for one, hopes for a trade agreement on the sidelines.
Also watch Europe. Some suspect the EU could accept a 10% U.S. tariff with no retaliation for greater U.S. commitments to NATO and Ukraine.
The EU wants to discuss lowering a G7 price cap on Russian oil, in efforts to cut Russia's energy supplies. Most G7 members appear ready to do that without the U.S.
Ukraine's Volodymyr Zelenskiy hopes for another chat with Trump at the G7, press reports suggest. And G7 host Canada, keen to diversify trade away from America, has invited India's Narendra Modi to attend, after bilateral relations soured in recent years.