Warning to Markets: Summer of Discontent

The British agency Reuters has listed six events that investors will pay special attention to in June, including the historic summit between the United States and North Korea, the elections in Turkey, and the Swiss referendum on the monetary system, Radio Free Europe reports.

Possible Swiss Shock – June 10

On June 10, Switzerland will hold a referendum on whether to introduce an independent monetary system that could shake up the way banks operate. If adopted, the measure would prevent commercial banks from creating new money value every time they issue a loan.

Supporters of the idea want the Swiss National Bank to be the only institution that creates new money value. However, the Swiss National Bank claims the plan will damage its ability to conduct monetary policy. If the referendum passes, investors could lose faith in the Swiss franc, as money printing will not be backed by assets.

It could also reduce the profits of Swiss banks such as UBS and Credit Suisse. Opinion polls show that only 35 percent of citizens support the change, but as Brexit and the 2016 US elections have shown, electoral upsets can happen.

Federal Reserve Interest Rate Hike – June 12 and 13

The US Federal Reserve is expected to announce on June 12-13 the second of three planned interest rate hikes for this year. Rates are expected to rise to 1.75-2.0 percent. The question now is whether the Federal Reserve Board can withstand a fourth increase in 2018.

That probability pushed the dollar's value to its highest level since November 2016 in May. Interest rates and Treasury bond yields are the main benchmark for global borrowing costs. The statement from Federal Reserve Chairman Jerome Powell after the meeting will be closely watched to determine the central bank's intentions.

The US economy is enjoying its second-longest expansion since World War II, with the lowest unemployment rate in 17 years. On the other hand, trade tensions with China pose a risk to growth. Powell's hawkish tone could lead to a further rise in the dollar's value and an increase in US yields.

Trump and Kim – To Meet or Not to Meet?

The fate of the historic US-North Korea summit scheduled for June 12 is unclear. But US President Donald Trump said this week that he hopes the meeting – and the push for Pyongyang's denuclearization – will happen.

There is hope that the talks will prevent North Korea's nuclear threats, which have rattled global stock markets. A North Korean delegation visited the White House on June 1 to deliver a letter from their leader Kim Jong-un to Trump.

Will OPEC Oil Flow After June 22?

Brent crude oil prices recently fell to $80 a barrel, and the meeting of oil producers in Vienna on June 22 will be closely watched by international global policymakers and market players. In early 2017, members of the Organization of the Petroleum Exporting Countries (OPEC), Russia, and some other non-OPEC producers limited oil production. The agreement is valid until the end of 2018, and the meeting in Vienna will discuss whether it will be extended.

However, a 30 percent increase in oil prices since the end of 2016 has fueled fears of inflation – the yield on US ten-year bonds recently rose to its highest level in seven years. The value of oil fell after Russia and de facto OPEC leader Saudi Arabia discussed partially resuming production that was halted due to the 2017 agreement.

But some other producers oppose increasing production, making consensus difficult to achieve. Analysts believe Brent prices will remain above $70 a barrel this year.

Turkey Votes on June 24

Turkey, considered one of the most promising emerging markets, has experienced a significant currency drop and bond sell-off this year. Elections will be held there on June 24, and Recep Tayyip Erdogan is expected to be re-elected to the newly established executive presidency role. Erdogan has overseen strong economic growth during his 15 years in power, but his plans to take greater control of the economy and monetary policy, and his deepening crackdown on opponents criticized by rights groups and Western allies, have deterred many investors.

Nevertheless, polls show that Erdogan's AK Party and its nationalist partners have the support of only 50 percent, so he could compensate for a loss of parliamentary control through some of his broader powers. Turkey is struggling to stabilize the lira, which has fallen as much as 20 percent against the dollar this year.

Erdogan, who has declared himself an "enemy of interest rates," immediately undermined a recent three-percentage-point interest rate hike. The central bank holds an official meeting on June 7 and may take further steps to stabilize the currency.

A Brexit Respite?

With time running out for Britain to reach a deal before leaving the European Union in March next year, diplomats hope the EU summit on June 28-29 can break the deadlock.

British Prime Minister Theresa May may be caught between a rock and a hard place, facing pressure from Brexit supporters who want to sever ties with the EU, while others advocate for maintaining customs cooperation with the Union. A government report, due before the talks, will present plans for various sectors, including financial services and agriculture.

Uncertainty surrounding the future relationship between the EU and the UK continues to affect the economy and the pound, which has weakened for six of the last seven weeks. The EU states that London has yet to find a viable solution for the Irish border – there are fears that re-establishing a physical border, including customs, between EU member Ireland and the British province of Northern Ireland could reignite violence.