Askume LONDON, Sept 13 – Don’t go anywhere: the week ahead will be eventful, with central bank meetings from the United States to Brazil and Europe to Japan.
The Federal Reserve is expected to cut interest rates for the first time in four years, Brazil may raise interest rates for the first time since 2022, and Japan will pay attention to market fluctuations and consider when to raise interest rates again.
But it’s not just about central banks, UniCredit’s move for Commerzbank has revived discussions about mergers and acquisitions among European banks.
What Louise Krauskopf in New York, Ray Wei in Singapore, Marcela Aires in Brasilia and Naomi Rovnick, Karin Strohecker and Tommy Wilks in London have to say about the week ahead on world markets.
1/ The time has finally come
The Fed is likely to finish its two-day meeting on Wednesday and cut interest rates for the first time in this cycle. The main question now is the extent and pace of the rate cut.
The recent debate has centered on whether the Federal Reserve will opt to cut interest rates by 25 basis points (bps) or 50 basis points in September. Data showed that consumer prices rose slightly in August, but core inflation remained slightly stable, pointing to a promising economic slowdown.
Federal Reserve Chairman Jerome Powell’s press conference will be scrutinized for signs of the pace of potential rate cuts. Employment data in August came in weaker than expected for the second consecutive month, raising some concerns about the FedIt may be too late to delay rate cuts .
Traders still expect the Fed to cut interest rates by more than 100 basis points by the end of the year, leading to differences between the market and the Fed’s dot plot forecasts.
2/ Up, not down
Also on Wednesday, Brazil’s central bank is expected to break with the Fed and begin a tightening cycle, with inflation above its 4.25% target and stronger-than-expected growth in Latin America’s largest economy.
Since keeping interest rates at 10.50% in July, the bank has said it could raise borrowing costs to achieve its 3% inflation target.Incoming Governor Gabriel Galippolo has reinforced his accommodative stance, and is betting on an imminent 25 basis point appreciation that could lead to a stronger reality.
But Brazil is an outlier among emerging economies.
In South Africa, inflation close to target, policy makersThe first rate cut in four years is expected on Thursday. In Turkey, the tax rate was also reduced to 50% on the same day.It is expected to remain unchanged , but may be revised in November.
Bank Indonesia raised the possibility of cutting interest rates in the fourth quarter at a meeting on Wednesday .
3/ Another weird thing
The only solution is to raise Japanese interest rates . At least that’s what Bank of Japan policymakers suggest, although doing so this month would be a surprise.
The Bank of Japan is expected to keep interest rates unchanged at its policy meeting that ends on Friday.The focus is on further tightening policy rates after already raising rates twice this year.
In keeping with the global trend of lowering interest rates, Bank of Japan policymakers have signaled that interest rates will be raised further if market behavior remains benign and economic conditions remain favorable .
That has helped the yen, which has risen more than 10% from a 38-year low hit in July, despite concerns among investors that further unwinding of yen-financed carry trades could lead to fresh volatility .
4/ accident
The Bank of England and Norges Bank are expected to keep interest rates on hold at their meetings on Thursday. The Bank of England is expected to cut interest rates twice before the end of the year and Norway could also begin cutting rates by then.
It would be hard for anyone, perhaps even the world’s top central banker, to have much confidence in such a forecast. Any unexpected move by the Fed could impact the global monetary policy outlook.
The Fed’s unexpectedly dovish stance could weaken the dollar, alter inflation expectations in countries such as Britain that import dollar-denominated goods, and prompt Norway’s central bank to support the oil-linked crown.
The Fed’s comments here cast doubt on continued easing, potentially boosting the dollar andStrengthening global financial conditions .
Investors rely on market forecasts of central bank policy. It is better to ignore them for now.
5/ It’s back, or else?
UniCredit’s ( CRDI.MI ) attack on Commerzbank ( CBKG.DE ) has fuelled speculation about a long-awaited revival in European banking mergers and acquisitions (M&A).
The Italian bank disclosed a 9% stake in the German lender, half of which it bought directly from the German government. UniCredit CEO Andrea Oser is willing to buy more shares or acquire Commerzbank if the bank is willing to cooperate.
Investors are now concerned about whether Orcel will be able to overcome the many obstacles to previous deals between European banks, including political opposition, and whether more banks will begin looking for other deals.
There are plenty of possibilities. Meanwhile, investors are buying bank stocks. Commerzbank shares are up nearly 20% in two days, while the European bank index (.SX7P) is up nearly 2%.
