A look at the day ahead in European and global markets from

Johann M Cherian

Speculation over potential U.S. intervention in the Middle East

has grabbed the market's attention this week, rattling investors

who were otherwise focused on a series of central bank meetings

that are expected to give outlooks on growth and inflation.

President Donald Trump was keeping the world guessing on

whether the U.S. might join Israel's air campaign against Iran,

telling reporters outside the White House on Wednesday: "I may

do it. I may not do it. I mean, nobody knows what I'm going to

do." Bloomberg News also reported that senior U.S. officials are

preparing for a possible strike on Iran in the coming days.

This ambiguity has kept markets on edge for nearly a week

now, while cracks are emerging among Trump's support base, some

of whom fear the president may stray from his isolationist

foreign policy stance.

Investors have learned to be patient in their response to

Trump's often unpredictable policymaking style, although

analysts warn that any sign of escalation in the Middle East

could spark a knee-jerk reaction in financial markets.

Global stocks have steadily cooled after a recent rally, and

analysts say the markets' biggest worry remains the lack of

headway towards highly anticipated trade deals with Trump's

tariff deadline less than a month away.

Investors in developed-market bonds have approached the

traditionally safe-haven assets with some trepidation. Ten-year

bonds in Germany, Britain and the U.S.

have been trading in tight ranges over the past few

sessions.

Amid all the uncertainties, markets are weighing potential

inflationary pressures that could keep central banks hawkish.

Increased military spending in the U.S. and European economies

could drive up government debt levels and undermine the already

waning appetite for developed-market bonds.

On Wednesday, optimism around the Federal Reserve signalling

lower borrowing costs this year was immediately tempered by

Chair Jerome Powell's statement that he expects tariffs to add

to inflation pressures.

The Bank of England will most likely flag the repercussions

from a recent spike in crude oil prices when it announces its

rate verdict later today, despite signs that price pressures

cooled as expected last month.

Policy decisions today by central banks in Switzerland and

Norway will also be in focus, after the European Central Bank

earlier this month chose to err on the side of caution when it

hinted at a pause to its rate-cutting cycle.

Key developments that could influence markets on Thursday:

- Central bank decisions due out of Britain, Switzerland,

Norway and Taiwan

- Commentary from ECB's Luis de Guindos, Francois Villeroy

de Galhau

- Eurogroup meeting in Luxembourg

- Eurozone finance ministers to discuss Bulgaria's euro

adoption, fiscal recommendations

- U.S. markets closed for Juneteenth National Independence

Day

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(By Johann M Cherian; Editing by Edmund Klamann)