(Bloomberg) — A 36-hour rush of global financial decisions could set the tone for the rest of the year as the world adjusts to pressure from the U.S. to keep interest rates high.
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Monetary policy will be decided at key meetings of half of the G20, starting with the Federal Reserve on Wednesday and ending with the Bank of Japan two days later.
They account for six of the 10 most traded currencies as global policymakers adjust to the theme of U.S. officials at Jackson Hole in August: interest rates are likely to remain high for an extended period of time. Central banks in developed countries may receive particular attention.
All the evidence suggests that inflation is not fully contained in many parts of the world, and as oil prices continue to rise, there are growing fears of further pressure.
That’s why central banks from the UK to Switzerland dare to declare their job done, even amid the prospect that they could open the door to a moratorium on Thursday, as happened last week in the euro zone. I don’t think anyone would.
Setting the tone for all of this is new forecasts released on Tuesday by the Paris-based OECD. The apparent resilience of the US economy may be the only bright spot as weak demand from China drags down global trade and the contours of a stagflation scenario take shape in Europe.
Against this backdrop, the Fed itself may leave interest rates unchanged, but it may also raise them again later this year.
Bloomberg Economics says:
“We think the FOMC will strike a balanced tone at its September 19-20 meeting by holding off on rate hikes and keeping further tightening on the table to prevent financial conditions from easing.”
―Stuart Paul, economist.Click here for complete analysis
Click here to find out what happened last week. Below is a summary of what will happen next in the global economy.
USA and Canada
Other than the Fed, it’s been a relatively quiet week in the US. Key releases include housing starts on Tuesday, new job losses on Thursday, and the latest purchasing managers’ indicators for manufacturing and services.
In Canada, higher gas prices could push headline inflation higher in August, but the central bank is keeping an eye on progress on key policies it began easing in July.
Governor Tiff Macklem and his colleagues are scheduled to release a summary of the deliberations that led to the decision to keep interest rates unchanged at 5% early this month.
Asia
The Bank of Japan will take center stage in Asia this week as investors look for further signals on policy direction from Governor Kazuo Ueda.
Economists surveyed by Bloomberg expect no changes at Friday’s meeting, but will closely scrutinize Ueda’s comments on the future of negative interest rates after he recently mentioned the possibility of abolishing them. .
Bank of Japan policymakers will also keep an eye on the impact of any future Fed decisions that could spill over to regional assets, 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 do so on Thursday, even as inflation begins to accelerate again in both economies.
Singapore, Malaysia and New Zealand have released trade statistics, but South Korea’s provisional figures are perhaps the most accurate picture of the latest global trends.
New Zealand is also due to release GDP figures on Thursday, which are likely to show a recovery in growth as the country prepares for elections next month.
Europe, Middle East, Africa
A large number of interest rate decisions across the region will keep investors busy. Most will be announced Thursday following the Fed.
Forecasters, led by the Bank of England, almost all predict a quarter-point rate hike, but there is less agreement on what will happen next.
With the UK economy contracting at the fastest pace in seven months at the start of the third quarter and the job market showing signs of cooling, there is a good chance that the latest measures will be the last. Governor Andrew Bailey said earlier this month that interest rates were likely “close to the top of the cycle”.
On the same day, Swiss National Bank policymakers led by Governor Thomas Jordan may raise rates further to rein in inflation, which is currently below target. If that happens, it could also be the last move in the current tightening cycle.
The same is true for Norges Bank, which signaled a possible move this month but could then change course to keep monetary policy at the tight level it will reach at that point.
The Riksbank may not be so relaxed on Thursday either. Despite the economic downturn, officials are too concerned about the inflation situation to risk pausing inflation.
Looking further, Turkey’s central bank will likely raise its key policy rate by another 500 basis points, to around 30%, according to a Bloomberg survey. This would be another signal that the government intends to end its long-standing ultra-easy policy.
Egypt surprised markets last month with a 100 basis point rate hike, and traders are eyeing a similar move on Thursday. The central bank is under pressure to rein in inflation, which is running at a record high of 37%, and to support the pound.
On the same day, South African policymakers are likely to keep the benchmark interest rate at 8.25% for the second straight session, beyond an expected acceleration in consumer price inflation.
Neighboring Eswatini, whose currency is pegged to the rand and has seen a sharp slowdown in inflation, could follow suit in the coming days.
Also on Friday, Mozambique’s interest rate decision is likely to be on the brink of being on hold or cutting rates, with inflation at its lowest level in nearly three years and expected to slow further, while neighboring countries’ Zimbabwe is expected to keep borrowing costs unchanged.
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Brazil’s central bank is widely expected to cut its policy rate by half a percentage point to 12.75% for the second consecutive meeting, even as inflation accelerates from a below-target 3.16% in June to 4.61% in August. has been done.
Economists surveyed by the central bank expect another 100 basis points of easing in 2023, cutting the key interest rate to 11.75%.
Mexico’s mid-month inflation report should show prices cooling further, but the pace is likely to be slower than in recent months as record high interest rates have barely improved strong domestic demand. Most analysts expect Banxico to start easing in early 2024.
Chile’s central bank published the minutes of its Sept. 5 meeting, in which policymakers cut the key policy rate by 75 basis points to 9.5%, following a sweeping cut in July. Analysts surveyed by Bloomberg expect interest rates to end the year at 7.5%, with another 300 basis points cut in 2024.
Brazil, Colombia and Mexico will release replacement GDP data for July next week, while Argentina will report second-quarter output, the last of the region’s large economies to do so.
Mexico, the region’s standout in the first half of the year, has benefited from a wave of nearshoring, overtaking China as the United States’ largest trading partner.
–With assistance from Robert Jameson, Monique Vanek, Paul Wallace, Milda Seputite, Paul Jackson, Ott Ammeras, and Laura Dillon Kane.
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