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A 36-hour rush to global monetary decisions could set the tone for the rest of the year as the world adjusts to US pressure to keep interest rates higher.
Monetary policy will be decided at key meetings of half of the Group of 20, starting with the Federal Reserve on Wednesday and ending with the Bank of Japan two days later.
Central banks in advanced economies, which account for six of the 10 most-traded currencies, may be of particular interest as global policymakers tune in to a theme U.S. officials set in Jackson Hole in August: that rates are likely to remain high for a long time.
All evidence suggests that inflation is not fully under control in much of the world, and the continued rise in crude oil prices is adding to the pressure.
So in a situation where central banks of countries from England to Switzerland are likely to open their vacations, as happened in the Eurozone last week, no one dares to call it quits.
Rounding out the vote will be new forecasts from the Paris-based OECD on Tuesday. With China’s weak demand dampening global trade and statements of volatile conditions in Europe, the strength of the US economy may prove to be the only bright spot.
That backdrop could push the Fed to keep rates on hold, but it could lead to another hike later this year.
What Bloomberg Economics Says
“We think the FOMC will strike a balanced tone at its Sept. 19-20 meeting, skipping rate hikes, but keeping additional tightening on the table to prevent easing of financial conditions.”
– Stuart Paul, Economist. For full analysis, click here
Click here for what happened last week and what’s coming up in the global economy below.
America and Canada
Apart from the Feds, it’s been a relatively quiet week in the US. Housing starts data on Tuesday, Thursday’s initial unemployment numbers and the latest Purchasing Managers’ Index for manufacturing and services will be the key releases.
In Canada’s August headline inflation is likely to be fueled by rising oil prices, but the central bank will watch for progress on key measures that began easing in July.
Governor Tiff McClum and his colleagues will release a summary of their decision to keep rates at 5% earlier this month.
Asia
The BOJ will take center stage in Asia this week as investors look for more signals from Governor Kazuo Ueda on the direction of policy.
While economists surveyed by Bloomberg expect no change at Friday’s meeting, they will closely scrutinize any suggestion of future negative rates after Yuda recently touched on the possibility of canceling them.
BOJ policymakers are already watching closely for any fallout from the Fed’s decision, including any impact on assets in the region.
Key lending rates in China are expected to remain unchanged on Wednesday, while the central banks of the Philippines and Indonesia are also expected to hold steady on Thursday – even as inflation starts to accelerate again in both economies.
As Singapore, Malaysia and New Zealand release trade figures, early numbers from South Korea will perhaps provide the closest pulse check on the latest global trend.
New Zealand has gross domestic product data due on Thursday that will signal a return to growth as the country prepares for an election next month.
Europe, Middle East, Africa
Several price decisions in the region will keep investors busy. Most of them come on Thursday because of the Fed.
The Bank of England takes center stage, with forecasters unanimously expecting a quarter-point hike but not unanimous on what will happen next.
The move could be the last as the UK economy shrank at its fastest pace in seven months at the start of the third quarter and the labor market showed signs of cooling. Governor Andrew Bailey said earlier this month that rates were probably “near the top of the cycle.”
On the same day, policymakers at the Swiss National Bank, led by President Thomas Jordan, may propose another rate hike to control inflation, which is currently below its target. If they do, that could be the last step in the current tightening cycle.
The same applies to Norges Bank, which has indicated it may move this month, but may change tack to keep monetary policy at its current level of tightening.
Sweden’s Riksbank, also on Thursday, is likely to be relaxed. Despite the weak economy, the authorities are very concerned about inflation.
Looking south, Turkey’s central bank will likely increase by another roughly 500 basis points, taking the key to about 30%, according to a Bloomberg survey. This is a new sign that the government is willing to end years of 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 reduce inflation and support the pound at a record high of 37 percent.
On the same day, policymakers in South Africa are likely to keep benchmark interest rates at 8.25% for a second consecutive meeting, ahead of the faster-than-expected pace of consumer-price growth.
Neighboring Eswatini, whose currency is pegged to the rand and has seen high inflation, is likely to match the move the next day.
Also on Friday, Mozambique’s rate decision could be a close call between keeping inflation at three-year lows and falling further, with neighboring Zimbabwe forecast to keep borrowing costs unchanged.
Latin America
Brazil’s central bank is widely expected to cut its key rate by half a point to 12.75% for the second consecutive meeting, although inflation rose to 4.61% in August from 3.16% targeted in June.
Economists polled by the central bank see another 100 points of easing to bring the key rate down to 11.75 percent by 2023.
Mexico’s mid-month inflation report should show that inflation eased further, although it may be slower than in recent months as higher interest rates boost domestic demand. Most analysts don’t see Banksco starting to ease until early 2024.
The Central Bank of Chile will set the agenda for the September 5 meeting, during which policymakers will cut the key rate by 75 basis points to 9.5%, following a full-point reduction in July. Analysts polled by Bloomberg see another 300 basis points of decline to follow in 2024, to 7.5% by the end of the year.
Brazil, Colombia and Mexico will all report July GDP-proxy data next week, while Argentina will post second-quarter output, the latest for the region’s largest economy.
Mexico, which stood out in the first half of the region, benefited from the offshore wind, making China the US’s largest trading partner.
–With assistance from Robert Jameson, Monique Vanek, Paul Wallace, Milda Septet, Paul Jackson, Ott Umelas, and Laura Dillon Kane.
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