Kick-off for power play

Just as the World Cup kicked off, the ECB started with rate hikes, US capital markets kicked off a historic round of capital funding, and an US-Iran deal is reportedly imminent. Next week, Warsh will chair his first FOMC meeting (hold), the BoJ will likely resume hikes and the BoE hold rates.

• United States: Beneath a soft core CPI print, underlying inflation is firmer than it appears, with risks skewed upward. Key signals from next week's FOMC meeting are about the reaction function and the new chair's intentions for reshaping policy. Even with Warsh's fresh legs, patience is still the gameplan.

• Euro Area: With the magnitude of the energy shock no longer allowing it to be looked through, the ECB delivered a 25bp hike at its June meeting. In our Research analysts’ view, a prompt resolution of the US-Iran conflict would not be sufficient to avert a second hike at the September meeting.

• United Kingdom: The UK economy contracted at the start of Q2. Next week, our Research team expects hard data to confirm the signals from surveys this week of a softening labour market and rising inflationary pressure. They expect the MPC to hold rates, but with dissenting votes, while PM Starmer faces dissent as ministers resign. 

• Japan: Our Research team expects the BoJ to raise rates next week, emphasizing upside inflation risks over downside economic risks, then to 1.5% by next spring. In the interim assessment of QT, a halt to the reduction in JGB purchases is expected from FY27 onward.
  
  
• China: May data painted a mixed picture, with strong exports offsetting weak consumption and housing. Despite higher oil-driven PPI, pass-through to CPI remains limited, reflecting firms' difficulty in passing on costs. Retail sales and FAI are set to weaken further, while IP is set to rebound on exports.
  
  
• Emerging Asia: Our Research team expects the BoK, CBC and BNM to be more inclined to hike rates this year, even if there is a more significant de-escalation in the Middle East conflict. BI and the BSP are more likely to try to pivot to rate cuts. They expect rate hikes next week from the BSP, BI and CBC.
  
  
• EEMEA: Our Research team expects the CNB to remain on hold next week despite hawkish comments from MPC members and see room for 300bp of cuts in H2 27. Yet, disinflation in Egypt is likely transitory while rising South Africa CPI raises the prospects of further SARB tightening.
  
  
• Latin America: External deficits remain contained across the region, as high commodity prices are supporting most countries' exports.