(Bloomberg) — The tectonic plates of the global economy will shift as the U.S. easing cycle begins this week, as officials from Europe to Asia set policy against the backdrop of fragile markets.
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The 36-hour money roller coaster will begin on Wednesday with a possible decision by the Federal Reserve to cut interest rates and will conclude on Friday with the outcome of the Bank of Japan’s first meeting, which raised borrowing costs and helped sow the seeds of a global selloff.
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Along the way, central bank peers in the Group of 20 and beyond, Brazil, where authorities will tighten for the first time in 3 1/2 years, and the Bank of England are poised to adjust their own policy levers. The UK central bank faces a delicate judgment on the pace of its balance sheet, which could also signal how much it is willing to ease further.
South African policymakers are expected to cut borrowing costs for the first time since 2020, while counterparts in Norway and Turkey are likely to keep them unchanged.
With the Fed’s decision taking center stage, jittery traders are debating whether officials will judge a quarter-point cut as sufficient antidote to an economy showing signs of losing momentum, or opt for a half-point move instead. Clues about the central bank’s future intentions will also be important.
But with an end to the suspense that the US announcement will bring, investors are likely to remain on edge at least until the BOJ finishes, a decision that should be scrutinized for clues about its next hike.
Here’s what Bloomberg Economics says:
“We think Fed Chairman Jerome Powell supports a 50-basis-point cut. However, in the absence of a clear signal from New York Fed Chairman John Williams before the pre-meeting blackout period, we think Powell does not have the full board’s support.
-Anna Wong, Stuart Ball, Elisa Winger, Estelle Oh and Chris G. Collins, Economists. For full analysis, click here
Amid a lull in yen-focused carry trades after its rate hike in July, the focus will be on memories of market turmoil a few weeks ago.
Not only that: China may also be in the spotlight at some point with a monetary announcement from officials there, just days after data showed the world’s second-largest economy was experiencing signs of spiraling deflation.
Click here to find out what happened in the past week, and below is our summary of what’s to come in the global economy.
USA and Canada
When Fed policymakers sit down on Tuesday at the start of their two-day meeting, they will have new figures on the state of consumer demand. While overall retail sales in August were hampered by sluggish activity at auto dealers, receipts from other merchants may have registered a healthy improvement.
Despite signs of consumer resilience, a central bank report released the same day is expected to show lingering malaise in factory production. The looming November elections and even higher borrowing costs are curbing capital spending.
On Wednesday, government figures showed housing starts firmed last month after falling in July to the lowest level since July 2020. Data from the National Association of Realtors on Thursday may show a deal is closing in on previously owned home sales.
Canada’s inflation measure for August is likely to show continued declines in both headline and core measures. A modest improvement won’t knock the Bank of Canada off its easing path, however, and cooler-than-expected data could fuel calls for deeper rate cuts.
Asia
BOJ Chairman Kazuo Ueda will get more attention after the board sets policy on Friday.
While economists are unanimous in saying there is no change in borrowing costs, how the governor characterizes the path could shake Japan’s currency, which has already spooked yen-carry traders more than its peers so far this month.
Elsewhere, China’s 1-year medium-term loan and credit prime rates are expected to remain unchanged, and Indonesia’s central bank is expected to hold its policy rate steady for a fifth straight month. Authorities in Taiwan decide on the discount rate on Thursday.
On the data front, Japan’s key consumer inflation gauge was seen a tad higher in August, supporting the case for the BOJ to watch for rate hikes in the coming months.
Japan, Singapore, Indonesia and Malaysia will release trade figures, while New Zealand is set to report second-quarter data that shows the economy shrank a smidgen from the previous quarter.
Europe, Middle East, Africa
Several decisions by the central bank are scheduled after the easing. Relying on dollar-denominated energy exports, Gulf states may automatically follow the US lead with rate cuts of their own.
Here’s a quick roundup of other announcements to be made on Thursday, mainly in Europe, the Middle East and Africa:
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While no rate change is expected from the BOE, investors are awaiting a key decision on whether it will accelerate its bond portfolio to keep gilt sales steady from a year ahead when an unusually high amount of debt matures. Hints on the pace of future rate cuts will also be eagerly awaited amid speculation that authorities will ease soon to help the economy.
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Norges Bank could see its deposit rate on hold at 4.5%, with analysts focusing on any adjustments to forecasts for easing early next year. Norwegian authorities may stick to their dovish stance with a strong labor market and the krone near a multi-year low, as the race for the first cut in December increases as inflation slows.
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Central banks in Ukraine and Moldova are also scheduled for results.
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Turning south, Turkey’s central bank is set to hold its key rate at 50% for a sixth straight meeting as it waits for inflation to ease further. The pace of annual price growth has slowed from 75% in May, but remains at 52%. Officials believe it will be 40% by the end of this year.
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The central bank may cut borrowing costs for the first time since 2020 a day later, with data forecast on Wednesday showing South Africa’s inflation fell to 4.5% in August. Governor Lesetja Kganyago said the agency would adjust rates when price growth remains firmly at the midpoint of its target range of 4.5%. Forward-rate contracts, used to estimate borrowing costs, are fully priced on the prospect of a 25-basis-point rate cut.
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Angola’s decision could be a close call between promotion and capture. The currency has depreciated nearly 7% against the dollar since August, while inflation has eased.
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On Friday, Eswatini, whose currency is pegged to South Africa’s rand, is expected to follow its neighbor and lower tariffs.
Elsewhere, comments from European Central Bank officials may be scrutinized for any hints of a future easing path after a second cut in borrowing costs. Several governors are due, with President Christine Lagarde giving a speech in Washington on Friday.
Speaking over the weekend, hawkish policymakers Joachim Nagel and Pierre Wunsch warned that the ECB should remain cautious on inflation, although they acknowledged that further interest rate cuts are likely if the central bank’s fundamental conditions bear fruit.
Other things to watch are euro-area consumer sentiment on Friday and, outside the currency zone, Swiss government forecasts on Thursday.
Turning south, data on Sunday will show Israel’s inflation held steady at 3.2% in August, still within the government’s target range of 1% to 3%. The economy is weakening, but the war in Gaza is causing supply constraints and government spending is rising, keeping inflationary pressures high.
In Nigeria on Monday, inflation eased to 32.3% in August, possibly showing a second straight month of decline. The price impact of last year’s demonetisation and temporary removal of fuel subsidies continues to moderate.
These measures are part of reforms introduced by President Bola Tinubu after he assumed office in May 2023.
Latin America
Brazil’s central bank meets against a backdrop of an overheated economy, above-target inflation, inconsistent CPI expectations and government fiscal stimulus.
Putting it all together, investors and analysts expect Wednesday to see tighter monetary policy for the first time in 3 1/2 years. Consensus calls for a 25 basis point hike to 10.75%, with another 75 basis points to follow by year-end, leaving the key rate at 11.5%.
Six July economic reports from Colombia should underline a slowdown in domestic demand, which analysts point to in their third- and fourth-quarter growth forecasts.
The pace of retail sales could build on June’s positive print, which snapped a 16-month slide, while preliminary consensus GDP-proxy data showed a rebound in activity after June’s modest decline.
Paraguay’s rate-setters are meeting inflation just above the 4% target. Analysts polled by the central bank forecast a cut of 25 basis points by the end of the year.
Some 10 months after the so-called shock treatment of President Javier Mille, Argentina is set to provide some information on the state of the economy this week.
Budget data may show the government posted its eighth straight monthly budget surplus in August, while the same scorched-earth austerity contributed to a third straight quarterly contraction in output.
With assistance from Brian Fowler, Vince Colle, Robert Jameson, Laura Dhillon Kane, Jane Pong, Piotr Skolimowski, and Monique Vanek.
(Updates with ECB in EMEA segment)
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