(Reuters) – A slew of central bank decisions from the U.S. to Japan, the U.K. to Switzerland, Brazil to South Africa will captivate markets in the days to come.
Forward-looking PMIs from many countries will provide clues as to how volatile global growth really is. Will Ukraine’s brisk counteroffensive change the trajectory of its conflict with Russia?
Here are Kevin Buckland in Tokyo, Vineet Sachdev in Bangalore, Dhara Ranasinghe, William Schomberg, Vincent Fasseur and Karin Strohecker in London, and Ira Iosebashvili in New York for the week ahead:
1/FULL ON FED
Stronger-than-expected inflation data raised expectations for what aggressive action policymakers will need to take to rein in consumer prices.
Hike 75 Wednesday, but some are gearing up for a one percentage point hike – unthinkable a few days ago.
Federal Reserve Chairman Jerome Powell’s views on the pace of monetary tightening, the resilience of the economy and the sustainability of inflation are critical — and so will signs of how the balance sheet unfolds. Some worry that the Fed’s process of cutting its balance sheet by a billion dollars a month could damage market liquidity and weigh on the economy.
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2/UBER-DOVES
Next comes the Bank of Japan’s decision on Thursday. With the Bank of Japan generally sticking to unprecedented easing, the interest rate gap between the U.S. and Japan will exceed 3 percent.
This level fueled the carry trade trend prior to the global financial crisis. Some have warned that the yen will rise again as Mrs Watanabe, as Mrs. Watanabe is known, unleashes some of the trillions of yen ($7 trillion), to the ) year-low yen brought extra pressure to pile under her mattress.
The currency fell sharply against the U.S. dollar on an almost weekly basis, even angering Bank of Japan Governor Haruhiko Kuroda, who backs a weaker yen, to warn of an “unfavorable” rapid move.
The central bank recently called lenders to ask about the exchange rate, which is considered one of the last steps before currency intervention. Analysts, however, see little chance of success, with the yen’s weakness largely of the Bank of Japan’s own making.
The Swiss National Bank is also meeting on Thursday and is expected to raise interest rates again sharply – a move that could lead to the first positive turn in Swiss rates in eight years.
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3/ Back to the topic
The Bank of England and the new UK finance minister, Quasi Kwatten, face a major test of their ability to manage a recessionary economy.
The Bank of England is scheduled to raise interest rates on Thursday – by 000 basis points and possibly even by 75 basis points – to fight inflation. On Friday, Kwarteng is expected to deliver his first fiscal statement to deliver on new Prime Minister Liz Truss’s promise to reverse April’s increase in social security contributions and a planned corporate tax hike. Tax cuts could spur price increases.
The opposing directions of monetary and fiscal policy underscore the challenges facing Britain, which has the highest inflation rate among the world’s largest wealthy nations and faces a recession. Traders who recently pushed the pound to a near four-year low are watching closely.
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4/RECESSION WATCH
The first snapshot of the global September business event will be released on Friday. There is no doubt that closely watched PMIs from many major economies may confirm what many now suspect: the world economy is heading for a recession.
The Eurozone PMI has fallen below
– a sign that separates contraction from expansion – indicating that the eurozone has been buoyed by energy shocks and monetary policy tightening A recession could come sooner than previously thought. With Italy’s September 25 elections approaching, the EU’s economic outlook is in the spotlight.
Efforts by governments to cushion the blow from soaring energy prices may help ease recession fears. Then again, for some observers, markets need to start taking recession risks more seriously.
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5/ Counterattack
Ukraine’s latest lightning counteroffensive – which, according to Kyiv, has liberated about 8,000 square kilometers of territory – brought new impetus to Europe’s first war in seven decades.
Russian troops encountered a stunning turnaround by Ukrainian special forces in the northeastern region of Kharkiv, forcing them to retreat in a sometimes hasty and chaotic retreat.
These events have sparked a rare dissent from Russia’s elected representatives against President Vladimir Putin.
Markets are trying to assess how Russia is likely to react and how the impact of the latest events will affect global markets, especially energy prices, and Europe is ready for economic recession.
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