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Frank Kelly’s Geopolitical Week Ahead | June 1, 2025

6/1/2025

Major elections dominate the week ahead, the U.S. pushes Asian allies to ramp up defense spending to 5% of GDP, the U.S. Senate takes up the Reconciliation Bill, and the ECB decides rates.

Francis (Frank) J. Kelly

Founder & Managing Partner, Fulcrum Macro Advisors LLC and Senior Political Strategist for DWS

Major elections dominate the week ahead
U.S. pushes Asian allies to ramp up defense spending
U.S. Senate takes up the Reconciliation Bill
ECB decides rates
Global economic radar screen

Major elections dominate the geopolitical calendar this week
First, Poland is holding important presidential run-off elections. At the time of this writing, the race is too close to call, but it appears conservative historian Karol Nawrocki is slightly ahead, and official results are expected to announced Monday. If Nawrocki wins, it will be seen as a defeat both for the current ruling coalition led by Prime Minister Donald Tusk as well as for the European Union as Nawrocki is seen as a EU-skeptic.

Also happening on Sunday, Mexico is voting for its judiciary for the first time. More than 2,600 federal, state, and local court seats are being voted on, moving the country away from an appointment-based system. It also makes Mexico the only country in the world to vote on all its judges. The move to an elected judiciary was championed by former President Andrés Manuel López Obrad (AMLO) and his successor, President Claudia Sheinbaum. Proponents say it will rid corruption from the judiciary while critics argue it will politicize the judiciary and allow drug cartels to further influence judges.

The third big election this week is in South Korea where voters will select a new president following the recent impeachment of President Yoon Suk Yeol who tried to seize control by declaring martial law six months ago. The South Korean political system has been chaotic ever since, but voters appear to be leaning toward electing left-wing Democratic Party leader Lee Jae-myung. With the economy experiencing slower growth, the election will likely result in a seismic political and economic change in the months ahead.

U.S. pushes Asian allies to ramp up defense spending
We would note U.S. Defense Secretary Pete Hegseth’s speech at the Shangri-la Security Conference this past week. Hegseth made headlines by saying a potential invasion of Taiwan by China is more likely than ever before. He also called on U.S. allies in Asia to increase their defense spending to 5% of their GDP. He also formally requested that Australia immediately raise their defense spending to 3.5% from the current rate which is putting the country on track to hitting 2.4% by 2030.

Meetings between Russia and Ukraine
In Turkey on Tuesday, low-level meetings between Russian and Ukrainian diplomats are scheduled to take place. No breakthroughs are expected despite President Donald Trump’s urging Russia to end the war immediately. The meeting takes place in advance of Ukraine Defense Contact Group – made up of NATO defense ministers – meeting in Brussels on Wednesday to discuss how to further support Ukraine.

Bulgaria to adopt the Euro?
Also in Europe this week, the European Commission is scheduled to release a report recommending Bulgaria adopt the Euro by 2026, further integrating the nation in the European Union.

U.S. Senate takes up the Reconciliation Bill
Moving to the U.S., Congress returns from their week-long Memorial Day recess and the U.S. Senate will begin debating President Trump’s “One Big Beautiful Bill” which was passed by the House of Representatives ten days ago.

The House bill is estimated to cost $2.5 trillion over the next ten years. But with new estimates suggesting the House version of the bill will actually add $3.8 trillion to the U.S. deficit and Moody’s recent downgrade of U.S. debt, senators are privately suggesting they intend to significantly cut the size of the package while wrestling over whether to include major tax provisions such as Section 899 which is seen as a revenge tax on foreign countries the U.S. deems have “unfair” tax policies that discriminate against U.S. businesses and investor. Foreign investment firms operating in the U.S. have already swung into action lobbying furiously against the provision, saying if the provision is included in a final bill, it will drive them out of the U.S.

Currently, by our count, there are at least five Republican senators prepared to vote against the current version of the overall package, enough to block the bill from moving forward. We expect weeks and perhaps months of fighting between Senate Republicans and President Trump and House Republicans as they try to hammer out a final version.

The global economic radar screen
The European Central Bank (ECB) meets this week to consider interest rates. Market consensus suggests the ECB will cut rates another 25 basis points, bringing rates down 2%.

Elsewhere in Europe, the Eurozone reports May CPI prints on Tuesday while Germany reports factory orders, industrial production and their trade balance. France also reports industrial production and their trade balance this week, too.

Turning to Asia, Japan will be releasing wage data and the Q1 Ministry of Finance Corporate Survey. China releases May PMIs and the Caixin indices this week.

And bringing it back to the U.S., jobs reports are out Friday after the JOLTS report comes out Tuesday and the ADP report comes out on Wednesday. Also this week, May ISMs (manufacturing and services) are out. And markets are going to be listening to Fed Chair Jay Powell when he gives remarks Monday at the Fed’s 75th International Finance Conference following Powell’s face-to-face meeting with President Trump this past week.

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Francis (Frank) J. Kelly

Frank is the Founder and Managing Partner of Fulcrum Macro Advisors LLC, a political risk advisory firm based in Washington, DC. He is the senior political strategist for DWS.

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Frank Kelly’s Geopolitical Week Ahead | June 1, 2025

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