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Fed leads global attack of 500 basis points on inflation: Eco Week

(Bloomberg) – The U.S. Federal Reserve and several global partners will launch a swift attack on inflation next week as their commitment to controlling consumer prices becomes more resolute. ever.

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Three-day central bank decisions are expected to bring rate hikes combined to more than 500 basis points, with the potential for a larger tally if officials choose to. more drastic.

Starting the onslaught will be Sweden’s Riksbank on Tuesday, with policymakers expected by economists to accelerate tightening with a 75 basis point move.

It was just a prelude to the main event, when US officials are expected Wednesday to raise borrowing costs by the same amount to keep pressure on rising inflation. After another consumer price index report topped forecasts, some investors even bet on a whopping 100 basis points gain.

Thursday will see the most popular action. Central banks in the Philippines, Indonesia and Taiwan are all expected to raise interest rates. The focus then shifts to Europe, with increases of half a point or more in anticipation of the Swiss National Bank, the Norges Bank and the Bank of England. Further south, the Reserve Bank of South Africa will resume efforts with a 75 basis point move expected and Egypt could act as well.

Even so, the three major central banks will likely be conspicuously absent from the escalating battle. On Wednesday, Brazilian policymakers could take a pause after a string of gains not seen in the past 18 months.

The next day, Bank of Japan officials are likely to remain unchanged even as they worry about the weakening of the yen. Then their Turkish colleagues will likely continue their unorthodox approach of keeping interest rates low – despite inflation above 80%.

What Bloomberg Economics says…

“In a busy week on monetary policy, we expect the Fed to increase by 75 basis points and the Bank of England by 50 basis points. Also in next week’s calendar are decisions from the central banks of Japan, Sweden, Turkey, Brazil, Indonesia and the Philippines, and an update on the lending prime rate from the PBOC. “

–Tom Orlik, chief economist. For full preview, click here

In other developments next week, US housing data, new UK government financial announcements, and Japanese inflation data will also attract investors’ attention.

Click here to see what happened last week and below is our recap of what’s to come in the global economy.

US Economy

While all eyes are on the Fed decision and Chairman Jerome Powell’s press conference, the economic data calendar will provide clues to the impact from central bank tightening so far this year. .

The August housing reports start and sales of previously owned homes will be released on Tuesday and Wednesday respectively. The median forecast for existing property purchases calls for a seventh straight monthly decline.

Weekly jobless claims and S&P Global’s manufacturing and services surveys for September should end a relatively quiet data week.

Asia

The BOJ’s board will make a policy decision on Thursday amid speculation that Japan is about to intervene in the currency markets as the yen tests 145 against the dollar.

Governor Haruhiko Kuroda is expected to remain firm in his stance on keeping policy unchanged, although he is likely to end his Covid-support loan program, which could open the way to adjusting guidance front.

Thursday will be a marathon between central banks in Asia, with Indonesia, the Philippines and Taiwan all setting policy, and the Hong Kong Monetary Authority reacting to the Fed’s overnight move.

Below, the Reserve Bank of Australia’s Jonathan Kearns will speak on Monday on rates and property prices, while RBA Deputy Governor Michele Bullock will speak at Bloomberg on Wednesday during an exclusive event.

On the data front, Japan’s national inflation data on Tuesday is expected to continue to rise. South Korea’s early trade data on Wednesday will continue to provide insight into the pace of the global economy’s deceleration. And Singapore releases inflation data on Friday.

Europe, Middle East, Africa

While the UK will be off Monday as a day of national mourning for Queen Elizabeth II, monetary policy business as usual will return on Thursday in a decision delayed by a week to allow the nation to mourning.

The BOE meeting will be the first opportunity for officials to react to the changing outlook brought about by new Chancellor Liz Truss’ efforts to contain the cost of living crisis, and the drop in the pound to low levels. lowest since 1985. Economists predict at least a half-point rate hike as officials face inflation remains uncomfortably high.

The next day, the new Prime Minister of the Exchequer Kwasi Kwarteng will hold a “financial event” where he is expected to confirm plans to reverse the recent increase in national insurance – a tax paid salary – and a more detailed description of the Truss support package.

The SNB may raise rates by 0.75 percentage points by quarterly decision on Thursday, a positive move to match euro zone gains, even as inflation in Switzerland is much lower. compared to the rest of Europe. Norway’s central bank is likely to also increase half an hour later, keeping the pace of gains fast after core consumer prices clearly exceeded their forecasts.

Earlier in the week, with Sweden’s Riksbank expected to raise interest rates, investors’ focus will be on how policymakers plan to accelerate future tightening plans in the coming weeks. amid growing evidence that the largest Nordic economy is headed for a recession in 2023.

In the euro area, speeches by European Central Bank Vice President Luis de Guindos and Bundesbank chief Joachim Nagel could draw investors, along with the first round of investor surveys. purchasing manager for September, which will take place on Friday.

Looking south, data in Ghana on Tuesday could show economic growth decelerating to 3% in the second quarter as a rise in exchange rates and a slump in the cedi fueled already soaring capital prices. .

Meanwhile, on Wednesday, a report out in South Africa showed inflation eased in August after gasoline prices fell, although the rate is expected to remain above the six-month ceiling. % of the central bank.

Concerns about further weakening of the rand and expectations of falling prices will be at the heart of the SARB’s Monetary Policy Committee on Thursday. One-month forward rate agreements – used for speculating on borrowing costs – are pricing outright at 75 basis points, with a spread of more than 100 basis points at the rate. 82%.

On Thursday, Turkey is likely to keep interest rates on hold after a shock cut in August, although the economy is slowing and the approach of next year’s elections means more stimulus measures. Like is still on the agenda.

Egypt is likely to raise interest rates on the same day as inflationary pressures mount and the pound continues to depreciate.

Latin America

Brazil’s central bank’s appreciation survey of economists leads the week, with a firm target for 2023 and beyond. Late on Monday, Colombia reports July economic activity, which may show some cooling compared to May and June.

Next, second-quarter output figures in Argentina could show surprising strength given the impact of political and market uncertainty on South America’s second-largest economy.

The highlight in Chile will be the minutes of the central bank’s September 6 meeting, where policymakers accelerate tightening with a larger-than-expected 100 basis point increase to push the benchmark interest rate. copies to a record 10.75%.

Looking at Mexico’s mid-month consumer price index, which is up slightly more than ever from 8.77%, suggests that Banxico’s peak inflation forecast for the third quarter may have arrived.

Brazil’s central bank is expected to keep its key interest rate unchanged at 13.75% after 12 consecutive record hikes from 2% in March 2021. Traders see less than 50% chance Assembly increases again in the coming months and it is possible that Brazil – among the first to begin tightening worldwide in March 2021 – also becomes one of the first to complete.

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