The world economy’s tectonic plates will shift this week when a US easing cycle begins, just as officials from Europe to Asia set policy against a backdrop of brittle markets.
A 36-hour monetary rollercoaster will start with the US Federal Reserve’s probable decision to cut interest rates on Wednesday, and finish 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.
The Fed decision will take centre stage, with jittery traders debating whether officials will judge a quarter-point cut to be adequate 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 pivotal.
But for all the end to suspense that the US announcement will bring, investors are likely to stay on edge at least until the BOJ is done, in a decision that’s bound to be scrutinised for clues on its next hike.
When Fed policymakers sit down Tuesday for the start of their two-day meeting, they’ll have fresh figures on the state of consumer demand. While overall retail sales in August were likely held back by slower activity at auto dealers, receipts at other merchants probably posted a healthy advance.
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Despite signs of consumer resilience, a Fed report out the same day is expected to show lingering malaise in factory output. Looming November elections and still-high borrowing costs are restraining capital spending.
On Wednesday, government figures are seen showing that housing starts firmed up last month after sliding in July to the lowest level since May 2020. National Association of Realtors data on Thursday will probably show contract closings on previously owned home sales remained weak, though.
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Meanwhile, 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 to borrowing costs, how the governor characterises the trajectory could jolt Japan’s currency, which has already spooked yen-carry traders by outperforming its peers so far this month.
Elsewhere, 1-year medium-term lending and loan prime rates in China are expected to be kept unchanged, and Indonesia’s central bank is tipped to hold its policy rate steady for a fifth month. Authorities in Taiwan decide the discount rate on Thursday.
On the data front, Japan’s key consumer inflation gauge is seen ticking higher a tad in August, backing the case for the BOJ to eye a rate hike in coming months.
Japan, Singapore, Indonesia and Malaysia will release trade figures, while New Zealand is set to report second-quarter data that may show the economy contracted a smidgeon versus the prior quarter.
Charts: Bloomberg
