"Super Central Bank Week" Approaches, Global Economic and Financial Landscape Faces New Variables

This week, the global financial markets welcome the highly anticipated "Super Central Bank Week," with policy moves by major central banks taking center stage. Meanwhile, the World Bank has downgraded its economic growth forecast, and trade disputes and policy uncertainties continue to impact the global economy. Against this backdrop, events such as the rising status of gold reserves, the potential adjustment of the Bank of Japan's bond-buying program, and the renewal of the bilateral local currency swap agreement between China and Turkey have further intensified the complexity of the global economic and financial landscape.

On June 10, the World Bank released the latest edition of its Global Economic Outlook report, sharply cutting the 2025 global economic growth forecast from 2.7% in January this year to 2.3%, with nearly 70% of economies seeing their growth rates downgraded. The World Bank stated that global economic growth is slowing due to trade barriers and an uncertain global policy environment. Compared to six months ago, when the economy appeared to be on track for a "soft landing," the global economy is now falling back into turmoil. The report projects that developed economies will grow by 1.2% this year, 0.5 percentage points lower than previously forecast. Among them, the U.S. economic growth rate has been significantly reduced from the previous 2.3% to 1.4%. Emerging markets and developing economies are expected to grow by 3.8%, 0.3 percentage points lower than previously forecast. In addition, global trade volume growth for this year and next year is projected to be 1.8% and 2.4%, respectively, 1.3 and 0.8 percentage points lower than the January forecast.

The Federal Reserve will announce its interest rate decision at 2 p.m. EDT on June 18, followed by a monetary policy press conference by Fed Chair Jerome Powell. Currently, the futures market places a 99% probability on the Fed "holding steady" at this meeting, with the earliest rate cut not expected until September. The market has little doubt about whether a rate cut will occur, and traders will focus more on the economic projections summary, Powell's press conference, and the interest rate dot plot to understand what factors will prompt the Fed to cut rates and when. If market expectations are correct, this will be the Fed's fourth consecutive hold. Recent economic data shows some signs of cooling in the U.S. labor market, while inflation continues to decline. However, the market remains concerned that Trump's tariffs could alter the situation faced by the Fed, potentially reigniting price increases and slowing economic growth. The Fed also pointed out this risk in its post-meeting statement last time.

A report from the European Central Bank shows that driven by record purchases and soaring gold prices, gold accounted for 20% of global official reserves in 2024, exceeding the euro's 16% and second only to the U.S. dollar's 46%. Global central banks are increasing their gold holdings at a record pace, with gold purchases exceeding 1,000 tons in 2024—twice the average annual purchases in the 2010s. The total global central bank gold reserves have now accumulated to 36,000 tons. In recent years, due to concerns about geopolitical instability and U.S. debt levels, global central banks have begun to reduce their reliance on the U.S. dollar, and gold is regarded as the ultimate safe-haven asset, featuring high liquidity, no counterparty risk, and being less susceptible to sanctions.

The Bank of Japan will announce its policy decision on June 17. The market generally expects the Bank of Japan to keep interest rates unchanged this week, with the focus shifting to its forward guidance. Recently, the market has generally delayed expectations for the Bank of Japan to raise rates, predicting that the bank will not hike rates again until the first quarter of 2026. Fiscal pressure is also becoming a hidden constraint on policy adjustments. As Japanese government bond yields rise, government debt-servicing costs have accounted for 24% of this fiscal year's budget, up 3 percentage points from last year. Compared to the outlook for rate hikes, the market is more focused on the Bank of Japan's stance on slowing down balance sheet reduction this time. More than half of the respondents expect the Bank of Japan to start slowing down balance sheet reduction from April next year, reducing the current pace of cutting 400 billion yen in government bond purchases per quarter to about 200 billion yen per quarter.

On June 13, the People's Bank of China and the Central Bank of the Republic of Turkey renewed their bilateral local currency swap agreement with a scale of 350 billion yuan / 189 billion Turkish lira. The agreement is valid for three years and can be extended by mutual consent. At the same time, the two sides also signed a memorandum of cooperation on establishing a RMB clearing arrangement in Turkey. The renewal of the bilateral local currency swap agreement helps strengthen financial cooperation between China and Turkey, promote the facilitation of bilateral trade and investment, and maintain regional financial stability.

Against the backdrop of "Super Central Bank Week," the global economic and financial landscape is fraught with variables. The policy decisions of major central banks will not only affect their respective national economies but also have a far-reaching impact on global markets. Investors need to closely monitor central bank dynamics and prudently respond to market fluctuations.