World Adapts to Fed’s Rate Order in 36-Hour Sequence
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A 36-hour rush of global monetary decisions may set the tone for the rest of the year as the world adjusts to a US push to keep interest rates high.
Starting with the Federal Reserve on Wednesday and ending with the Bank of Japan two days later, monetary policy will be determined at key meetings across half of the Group of 20.
Advanced-economy central banks, accounting for six of the 10 most-traded currencies, may draw particular focus as global policymakers adapt to the theme US officials set out at Jackson Hole in August: that rates are likely to stay higher for longer.
All evidence suggests inflation isn’t fully tamed across much of the world, and the ongoing rise in crude oil prices is stoking worries of yet more pressure.
So no-one will dare to declare that their job is done, even amid the prospect that central banks in countries from the UK to Switzerland on Thursday could open the door to a pause, as happened last week in the euro zone.
Setting the tone for all of them will be new projections from the Paris-based OECD on Tuesday. With weak demand from China depressing global trade, and the outlines of a stagflationary scenario forming in Europe, the apparent resilience of the US economy could prove the only bright spot.
That backdrop may prompt the Fed itself to keep rates on hold, but maybe pencil in another increase for later this year.
What Bloomberg Economics Says:
“We think the FOMC will strike a balanced tone at its Sept. 19-20 meeting by skipping a rate hike, but keeping further tightening on the table, lest financial conditions ease.”
—Stuart Paul, economist. For full analysis, click here
Click here for what happened last week and below is our wrap of what’s coming up in the global economy.
US and Canada
Aside from the Fed it’s a relatively quiet week in the US. Housing starts data on Tuesday, initial jobless numbers on Thursday and the latest purchasing manager indexes for manufacturing and services will be the key releases.
In Canada, headline inflation for August could tick higher on rising gasoline prices, but the central bank will be watching for progress on core measures that began easing in July.
Governor Tiff Macklem and his colleagues will release a summary of the deliberations that led to their decision to hold rates steady at 5% earlier this month.
The BOJ takes center stage in Asia this week as investors look for more signals from Governor Kazuo Ueda on the policy direction.
While economists surveyed by Bloomberg expect no change at Friday’s meeting, they’ll closely scrutinize any comments on the future of negative rates after Ueda recently touched on the possibility of scrapping them.
BOJ policymakers will also be watchful for any effects from the Fed decision earlier that might ripple through to assets in the region, including the yen.
In China, prime lending rates are expected to remain unchanged on Wednesday, while central banks in the Philippines and Indonesia are also expected to stand pat on Thursday — even as inflation starts to accelerate again in both economies.
Singapore, Malaysia and New Zealand release trade figures, while preliminary numbers from South Korea offer perhaps the closest pulse check on the latest global trend.
New Zealand also has GDP data due Thursday that’s likely to show a return to growth as the country readies for an election next month.
Europe, Middle East, Africa
A multitude of rate decisions across the region will keep investors busy. Most come on Thursday in the wake of the Fed.
The Bank of England will take center stage, with forecasters almost unanimously anticipating a quarter-point hike but less united on what happens next.
With the UK economy having shrunk at the fastest pace in seven months at the start of the third quarter and the jobs market showing signs of cooling, it’s feasible that the move may be the last. Governor Andrew Bailey said earlier this month that rates are probably “near the top of the cycle.”
The same day, Swiss National Bank policymakers led by President Thomas Jordan may deliver another rate hike to contain inflation that’s currently below their target. If they do, that too could be the final move in the current tightening cycle.
The same applies to Norges Bank, which signaled a likely move this month but might then change tack to keep monetary policy at the tighter level it will then have reached.
Sweden’s Riksbank, also on Thursday, may be less relaxed. Despite a feeble economy, officials are too concerned about the state of inflation to risk a pause.
At the European Central Bank — which just hiked in what have been the final step in this tightening cycle — traders are already to bet on rate cuts, though Governing Council member Martins Kazaks said that speculation for such a move in the first half of 2024 is a mistake. ECB Executive Board members including Vice President Luis de Guindos and Chief Economist Philip Lane may be quizzed about that prospect when they speak this week.
Looking south, Turkey’s central bank will probably hike by another roughly 500 basis points, taking its key rate to about 30%, according to a Bloomberg survey. That would be a fresh signal that the government is intent on ending years of ultra-loose monetary policy.
Egypt surprised the market with a 100 basis-point hike last month, and traders will be watching for a similar move on Thursday. The central bank is under pressure to slow inflation that’s running at a record high of 37%, and support the pound.
On the same day, policymakers in South Africa are likely to look beyond an expected quickening in consumer-price growth and maintain the benchmark interest rate at 8.25% for a second straight meeting.
Neighboring Eswatini, whose currency is pegged to the rand and has seen a sharp slowdown in inflation, may match the move the following day.
Also on Friday, Mozambique’s rate decision is likely to be a close call between a hold and a cut with inflation at a near three-year low and expected to slow further, while its neighbor Zimbabwe is forecast to keep borrowing costs unchanged.
Brazil’s central bank is widely expected to cut its key rate for a second straight meeting, by a half-point to 12.75%, even though inflation has accelerated from a below-target 3.16% in June to 4.61% in August.
Economists surveyed by the central bank see another 100 basis points of easing in 2023 to bring the key rate down to 11.75%.
Mexico’s mid-month inflation report should show prices cooled further, though likely at a slower pace than in recent months as record high interest rates only barely get the better of strong domestic demand. Most analysts don’t see Banxico beginning to ease until early 2024.
Chile’s central bank posts the minutes of its Sept. 5 meeting, at which policymakers cut the key rate by 75 basis points to 9.5% in a follow-up to a full-point reduction in July. Analysts surveyed by Bloomberg see a year-end rate of 7.5% with another 300 basis points of cuts to follow in 2024.
Brazil, Colombia and Mexico all report July GDP-proxy data in the coming week while Argentina posts second-quarter output, the last of the region’s big economies to do so.
The region’s first-half standout, Mexico, is benefiting from a wave of nearshoring and has eclipsed China as the US’s biggest trade partner.
–With assistance from Robert Jameson, Monique Vanek, Paul Wallace, Milda Seputyte, Paul Jackson, Ott Ummelas and Laura Dhillon Kane.
(Updates with ECB in EMEA section)
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