The Federal Reserve will publish the minutes of its first meeting chaired by Kevin Warsh on Wednesday, whose terse statement and lack of forecasts have unsettled the markets.
Investors are eagerly awaiting the minutes of the Federal Reserve's (Fed) June meeting, which will be published on Wednesday. This will be the first opportunity to learn the details of the internal debate under the presidency of Kevin Warsh, the nominee by Donald Trump who surprised the market with an unusually brief statement and no interest rate forecasts.
Warsh drastically reduced the length of the official text and declined to participate in the interest rate projections of the Federal Open Market Committee (FOMC). His style contrasts with that of his predecessor, Jerome Powell, who advocated for extensive communication to guide the markets and avoid shocks.
Warsh's reticence spikes interest in the minutes
The brevity of the June statement gives the minutes exceptional weight. “The minutes will take on greater importance because, until now, we did not know what they were thinking,” explains George Goncalves, head of macroeconomic strategy for the U.S. at MUFG Securities Americas.
According to Goncalves, “it will be revealing to see how they debate and what they focus on.” Investors are wondering whether the Fed will maintain its non-intervention policy or return to greater transparency. “Many market participants are not used to less information,” he adds.
“Now we must read between the lines,” says George Goncalves from MUFG.
The uncertainty regarding the direction of U.S. monetary policy adds to a complex global context, with trade wars and geopolitical tensions affecting the markets.
Germany: manufacturing industry remains under pressure
In Europe, attention is focused on Germany. Key data from the manufacturing sector will be published next week, which has been dragging years of stagnation. German industrial production peaked at the end of 2017 and is now 1% below where it was a decade ago, according to the Bundesbank.
Industrial orders show extreme volatility. They surged in March due to stockpiling ahead of the war with Iran, but plummeted in April. “Any rebound in industrial orders after a very weak April should be moderate,” warns Carsten Brzeski, global head of macroeconomics at ING.
Brzeski adds that activity in May was hampered by holidays and the Iranian conflict. “The first wave of stockpiling has already passed,” he states. Trade and industrial production data are also expected to be disappointing.
“After a slight rebound in April, industrial production seems headed for disappointment,” notes Carsten Brzeski from ING.
Some economists, like Holger Schmieding from Berenberg, are hopeful that Chancellor Friedrich Merz's reforms will eventually boost potential growth. But Joachim Schallmayer from DekaBank believes that “in the short term, the main channel is confidence.” Investors will need to be patient.
China: inflation moderates after the truce with Iran
China will publish June inflation data on Thursday, the first since the oil price drop due to the fragile truce between the U.S. and Iran. The war raised energy prices and pulled Chinese price indices out of years of stagnation.
Since February, CPI inflation has remained above 1% annually, something that hasn't happened since early 2023. In March, PPI returned to positive territory after more than 40 months. However, the end of the conflict and the weakness of domestic demand, hampered by the real estate crisis, could bring the giant back closer to deflation.
For investors, the combination of an opaque Fed, a stagnant German industry, and a potential inflation slowdown in China paints a picture where caution and reading between the lines will be key.
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