Big News this week
ECB Tightening Its Monetary Policy
The European Central Bank announced to leave rates unchanged (Main refinancing operations 0.00%, Marginal lending facility 0.25%, Deposit facility -0.4%) and expect to remain at this level at least through the summer of 2019. The European Central Bank kept options open as Draghi said rates would remain at record lows for “as long as necessary” to keep inflation just under 2 percent. The European Central Bank also announced to end the Asset Purchase Programme by December 2018. The Governing Council will continue to make net purchases at the current €30 billion per month until the end of September 2018; the asset purchase will reduce to €15 billion until the end of December 2018. The EUR fell around 1% after the monetary policy decision, the EUR fell another 1.4% after Draghi’s dovish view of the upcoming risks including U.S. trade tariffs and the nervousness that Italy’s populist government might start another financial crisis.
The Long-Awaited Meeting
After months of preparation and speculations that the summit between U.S. President Trump and North-Korea leader Kim Jong Un finally came true at Singapore this week Tuesday. According to President Trump, the meeting was a success, the North Koreans signing an agreement to a complete denuclearisation of the Korean Peninsula and permitted for the United States to resume MIA remains. North Korea scored two key victories as China voiced support for revisiting economic sanctions and Trump announced to suspend military exercise with South Korea. Kim Jong Un receives a “hero’s welcome as he returns to Pyongyang”.
FED’s interest rate decision
The Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 2%. The rise of rates is expected in the market as USD rallied in EUR/USD to 1.17253 while falling back to 1.17864. The FOMC is projecting two additional hikes by the end of the year and three further hikes by the end of 2019. The projected gradual rate rise will be consistent with the sustained economic growth, strong labour market, and help to maintain the interest rate around 2%.
Other Important Events
►The Bank of Japan decided with an 8-1 majority vote to leave the interest rate unchanged at -0.1%. The Bank of Japan also decided will maintain the current pace of ¥80 trillion Japanese Government Bonds repurchase so that the 10-year Japanese Government Bonds yield will remain at around 0%.
►The G7 summit ended with many issues unsolved. Just after Trump gives a 10/10 rating for the relationship between the G7 members, he tweeted he would not endorse the communique due to “false statements” from the Canadian Prime Minister. He added that the U.S. tariffs are in response to Canadian 270% tariff on dairy. President Donald Trump was also criticised for insisting that the G7 should bring back Vladimir Putin as it would be an “asset” at the summit table.
Up-Coming Events
►Bank of England is set to release their interest rate decision followed by their monetary policy statement on 21st June.
►President Donald Trump has approved tariffs on $50 Billion in Chinese imports on a list of about 1,300 products. An updated list of Chinese tariff targets is scheduled to release on Friday.
Video of the Week
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