World brackets for ease of fade between 36-hour rate rollercoasters

The tectonic plates of the world economy will shift this week as the US eases its cycle as officials from Europe to Asia decide policy against a backdrop of fragile markets.

The 36-hour financial rollercoaster will begin with the Federal Reserve’s likely decision to cut interest rates on Wednesday and end on Friday.

The outcome of the Bank of Japan’s first meeting as it raised borrowing costs helped sow the seeds of a global selloff.

Along the way, central banking peers in the Group of 20 and beyond include Brazil, where officials may tighten for the first time in 3 1/2 years, and the Bank of England. The UK central bank faces a delicate verdict on the pace of its balance-sheet unwinding, and it 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 may keep them unchanged.

The Fed’s decision will take center stage, with jittery traders debating whether officials will judge a quarter-point cut as sufficient medicine for an economy showing signs of losing momentum, or whether they’ll opt for a half-point move instead. Clues on the Fed’s future intentions will also be key.

But for all the suspense the US announcement will bring, investors are likely to be on edge at least until the BOJ completes, in a decision that will be scrutinized for clues on its next hike.

What Bloomberg Economics Says:
“We think Fed Chair Jerome Powell supports a 50-basis point cut. However, the lack of a clear signal from New York Fed President John Williams before the pre-meeting blackout period suggests that Powell does not have the support of the full committee.”
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou, and Chris G. Collins, Economists.

It may be tempting to focus on memories of the market’s ruckus a few weeks ago amid the unwinding of the yen-centric carry trade after its rate hike in July.

And that’s not all: China could also be in the limelight, with officials there expected to release a fiscal announcement at some point — days after data showed the world’s second-largest economy was suffering signs of growing deflation.

US and Canada
When Fed policymakers sit down on Tuesday for the start of their two-day meeting, they will have fresh data on the state of consumer demand. While overall retail sales are likely to decline in August due to slower activity at auto dealers, receipts from other dealers may post healthy advances.

Despite signs of consumer resilience, a Fed report released the same day is expected to show a lingering malaise in factory output. November elections and still high borrowing costs are holding back capital spending.

On Wednesday, government data showed housing starts to strengthen last month after slipping in July to the lowest level since May 2020.

Data from the National Association of Realtors on Thursday will likely show that contracts on previously owned home sales are likely to close, however.

Canada’s inflation reading for August is likely to show continued slowdown in both headline and core measures. However, a slight increase may not divert the Bank of Canada from its easy path, while the colder-than-expected data could fuel calls for a rate cut.

Asia
BOJ Chief Kazuo Ueda is bound to get a lot of attention after the board sets policy on Friday.

While economists are unanimous in predicting no change in borrowing costs, how the governor characterizes the path could jolt Japan’s currency, which has already spooked yen-carrying traders ahead of its peers so far this month.

Elsewhere, China’s 1-year medium-term lending and loan prime rates are expected to remain unchanged, and Indonesia’s central bank has kept its policy rate on hold for a fifth month. Authorities in Taiwan set the discount rate on Thursday.

On the data front, Japan’s core consumer inflation gauge rose a notch in August, supporting the case for the BOJ to raise rates next month.

Japan, Singapore, Indonesia and Malaysia will release trade figures, while New Zealand is set to report second-quarter data that could show the economy has narrowed its recession compared to the previous quarter.

Europe, Middle East, Africa
Several central bank decisions have been scheduled following the Fed’s possible easing. Given their reliance on dollar-denominated energy exports, Gulf states may automatically follow the US lead by cutting their own rates.

Here’s a quick roundup of other announcements to be made on Thursday, mainly in Europe, the Middle East and Africa:
While no rate change is expected from the BOE, investors are awaiting a crucial ruling on whether it will accelerate the wind-down of its bond portfolio to keep gilt sales steady from a year ago when an unusually high amount of debt matures. Signals on the pace of future rate cuts will also be keenly awaited, amid speculation that officials will soon increase easing to help the economy.

Norges Bank kept its deposit rate at 4.5%, with analysts focusing on any adjustment in expectations of easing early next year. While slower inflation has raised the stakes on the first cut in December, Norwegian officials may stick to their hawkish stance with a strong labor market and the krone near multi-year lows.

Central banks in Ukraine and Moldova are also scheduled for decisions.

Turning south, Turkey’s central bank is set to hold its key rate at 50% for the sixth consecutive meeting as it waits for inflation to slow further. The pace of annual price growth has slowed from 75% in May, but remains as high as 52%. Officials hope it will approach 40 percent by the end of the year.

With data on Wednesday forecasting South African inflation to have slowed to 4.5% in August, the central bank could cut borrowing costs for the first time since 2020 a day later. Governor Lesetja Kganyago has said the agency will adjust rates once price growth is firmly at the 4.5% midpoint of its target range, where it chooses to be in line with expectations. Forward-rate agreements, which are used to hedge borrowing costs, are fully priced into the chance of a 25-basis-point rate cut.

Angola’s decision could be a close call between a raise and a hold. While inflation is easing, the currency has weakened about 7% against the dollar since August.

On Friday, the iswatini, whose currency is pegged to the South African rand, is expected to follow its neighbor and lower rates.

Elsewhere, comments from European Central Bank officials may be scrutinized for any signs on the path to future easing after another cut in borrowing costs. Several governors are scheduled to attend, and President Christine Lagarde will deliver a speech in Washington on Friday.

Other items to watch include euro-area consumer confidence on Friday, and outside the currency zone, the Swiss government forecast on Thursday.

Turning south, Sunday’s data showed that Israel’s inflation held steady at 3.2% in August, still above the government’s target of 1% to 3%.

The economy is weakening, but the war in Gaza is causing supply-side constraints and increasing government spending, keeping inflationary pressures high.

In Nigeria on Monday, data will likely show inflation slowed to 32.3% in August for the second month in a row. That’s because the impact on prices of last year’s currency devaluation and the temporary removal of fuel subsidies continues to diminish.

These were among the reforms introduced by President Bola Tinubu after assuming office in May 2023.

Latin America
Brazil’s central bank meets against a backdrop of an overheating economy, above-target inflation, subdued CPI expectations and government fiscal crunch.

Putting it all together, investors and analysts expect Wednesday to see tightening monetary policy for the first time in 3 1/2 years. Consensus is for a 25 basis-point hike to 10.75%, with a further 75 basis points of tightening by the end of the year, taking the key rate to 11.5%.

Colombia’s six July economic reports should underscore the resilience of domestic demand with analysts marking down 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 early consensus had GDP-proxy data showing a recovery in activity after June’s mild slowdown.

Paraguay’s rate setters meet with inflation slightly above the 4% target. Analysts surveyed by the central bank see a 25 basis-point decline by the end of the year.

After about 10 months of so-called shock therapy to President Javier Milli, this week Argentina is set to provide some telling data on the state of the economy.

Budget data showed the government posted its eighth consecutive monthly budget surplus in August, while the same scorched-earth austerity contributed to a third straight quarterly contraction in output.