World braces for Fed easing amid 36-hour rate rollercoaster

The tectonic plates of the global economy will shift this week as a cycle of easing begins in the United States, just as officials in Europe and Asia set policy amid fragile markets.

A 36-hour monetary roller coaster will begin with the Federal Reserve’s likely decision to cut interest rates on Wednesday and end on Friday with the

outcome of the Bank of Japan’s first meeting since it raised borrowing costs and helped sow the seeds of a global sell-off.

Along the way, peer central banks from the Group of 20 and others that are ready to adjust their own policies include Brazil, where authorities could tighten monetary policy for the first time in three and a half years, and the Bank of England. The U.K. central bank faces a delicate decision on the pace of its balance sheet reduction and may also signal how ready it is for further easing.

South African authorities are expected to cut borrowing costs for the first time since 2020, while their counterparts in Norway and Turkey could keep them unchanged.

He Federal Reserve The decision will take center stage, with nervous traders debating whether policymakers will judge a quarter-point cut to be adequate medicine for an economy showing signs of losing momentum, or opt instead for a half-point cut. Clues about the Fed’s future intentions will also be key. But for all the suspense the U.S. announcement will bring, investors are likely to remain on alert at least until the Bank of Japan makes a decision that will surely be scrutinized for clues about its next rate hike. What Bloomberg Economics says:
“We believe that the Fed Chairman Jerome Powell “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 silence period suggests that Powell does not have the support of the entire committee.”
—Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists.

Minds will turn to memories of the market turmoil of a few weeks ago amid the unwinding of yen-focused carry trades following its July rate hike.

And that’s not all: China could also be in the spotlight, with a monetary announcement by its officials expected at some point, days after data showed the world’s second-largest economy is suffering signs of a deflationary spiral.

United States and Canada
When Federal Reserve policymakers meet Tuesday to begin their two-day meeting, they will have fresh figures on the state of consumer demand. While overall retail sales in August were likely held back by slower activity at auto dealerships, revenue at other retailers likely posted a healthy advance.

Despite signs of consumer resilience, a Federal Reserve report due out the same day is expected to show persistent malaise in factory output. The proximity of the November election and still-elevated borrowing costs are constraining capital spending.

Government figures on Wednesday showed housing starts firmed last month after falling in July to the lowest level since May 2020.

However, data from the National Association of Realtors on Thursday will likely show that closings on previously owned homes remained weak.

Canadian inflation for August is likely to show a continued slowdown, both in headline and core terms. However, a slight uptick would not cause the Bank of Canada to abandon its easing path, while cooler-than-expected data could boost calls for deeper rate cuts.

Asia
BOJ chief Kazuo Ueda is sure 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 shake Japan’s currency, which has already spooked yen carry traders by outperforming its peers so far this month.

Meanwhile, China’s one-year prime and medium-term lending rates are expected to remain unchanged, and Indonesia’s central bank is expected to hold its benchmark rate steady for a fifth month. Taiwan’s authorities will decide on the discount rate on Thursday.

On the data front, Japan’s key consumer inflation gauge is expected to rise slightly in August, supporting the BOJ’s stance to consider a rate hike in the coming months.

Japan, Singapore, Indonesia and Malaysia will release trade figures, while New Zealand will report second-quarter data that may show the economy contracted slightly compared with the previous quarter.

Europe, Middle East, Africa
Several central banks are expected to take action in the wake of the Fed’s likely easing. Given their reliance on dollar-denominated energy exports, the Gulf states could automatically follow the US lead with their own rate cuts.

Here’s a quick rundown of other announcements coming across Europe, the Middle East and Africa, primarily on Thursday:
While the Bank of England is not expected to change interest rates, investors are awaiting a crucial decision on whether it will speed up the liquidation of its bond portfolio to keep government bond sales steady ahead of a year in which an unusually high amount of debt comes due. Clues on the pace of future rate cuts are also eagerly awaited, amid speculation that policymakers will soon step up easing to help the economy.

Norges Bank is expected to keep its deposit rate at 4.5%, with analysts focused on adjustments to easing projections early next year. While slowing inflation has raised bets on a first cut in December, Norwegian authorities may maintain their hawkish stance at a time when the labour market is strong and the krone is near multi-year lows.

The central banks of Ukraine and Moldova are also expected to make decisions.

In the south, Turkey’s central bank is set to keep its key interest rate at 50% for a sixth consecutive meeting as it expects inflation to slow further. The pace of annual price growth has fallen from 75% in May but is still as high as 52%. Officials hope to bring it closer to 40% by the end of the year.

Data on Wednesday is expected to show South Africa’s inflation slowed to 4.5% in August, so the central bank could cut borrowing costs for the first time since 2020 a day later. Governor Lesetja Kganyago has said the bank will adjust rates once price growth is firmly at the 4.5% midpoint of its target range, where it prefers to anchor expectations. Forward rate agreements, used to speculate on borrowing costs, are fully pricing in the possibility of a 25 basis point rate cut.

Angola’s decision may be a stark choice between raising or suspending rates. While inflation is easing, the currency has weakened by almost 7% since August against the dollar.

Eswatini, whose currency is pegged to South Africa’s rand, is expected to follow its neighbour’s lead and lower exchange rates on Friday.

Meanwhile, comments by European Central Bank officials could come under close scrutiny for clues about the path of future easing following a second cut in borrowing costs. Several governors are scheduled to speak and President Christine Lagarde is due to give a speech in Washington on Friday.

Other factors to watch include consumer confidence in the eurozone, which will be released on Friday, and, outside the currency zone, the Swiss government’s forecasts, which will be released on Thursday.

Looking south, data on Sunday is expected to show 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 constraints and government spending is soaring, keeping inflationary pressures high.

In Nigeria, data on Monday will likely show inflation decelerated for a second consecutive month in August, to 32.3%. This comes as the impact on prices of the currency devaluation and the temporary removal of fuel subsidies last year continues to ease.

The measures were part of reforms introduced by President Bola Tinubu after assuming office in May 2023.

Latin America
Brazil’s central bank is meeting amid an overheating economy, above-target inflation, shaky CPI expectations and government fiscal largesse.

Investors and analysts are all expecting tightening monetary policy on Wednesday for the first time in three and a half years. The consensus is for a 25 basis point hike to 10.75%, followed by a further 75 basis points of tightening before the end of the year, taking the benchmark rate to 11.5%.

Colombia’s six economic reports for July should underscore the resilience of domestic demand that has led analysts to raise their growth forecasts for the third and fourth quarters.

Retail sales momentum may benefit from positive data for June, which broke a 16-month slump, while early consensus has GDP proxy data showing a rebound in activity after a slight drop in June.

Paraguay’s interest rate setters are faced with inflation slightly above the 4% target. Analysts surveyed by the central bank expect a 25 basis point cut by the end of the year.

After about 10 months of President Javier Milei’s so-called shock therapy, some revealing data on the state of the Argentine economy will be released this week.

Budget data may show the government posted an eighth straight monthly budget surplus in August, while that same scorched-earth austerity contributed to a third straight quarterly contraction in output.