Financial basis

The Fed and the BOE prepare 75 basis point bursts on inflation: Eco Week

(Bloomberg) – The Federal Reserve and the Bank of England could both trigger interest rate hikes of 75 basis points in the coming days in a show of aggressiveness against inflation, even in the face of recession risks. croissants.

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The transatlantic double act illustrates the compromise facing central banks as evidence of an impending global economic contraction becomes harder to ignore, even if inflation persists.

For the Fed, Wednesday’s equally outsized fourth move will bring it to a crossroads. The damage to growth inflicted by the policy tightening is no longer masked by the buoyancy of the post-pandemic economy, while its success in containing inflation has yet to materialize.

The BOE’s situation on Thursday is even less comfortable as it delivers what would be the UK’s biggest rate hike since 1989. Not only is the country likely already in recession, but officials are also trying to restore credibility to the framework British after the former prime minister. Minister Liz Truss’ unfunded fiscal plan has led to a disastrous market crisis.

For each central bank, the week’s action is likely to be just a stepping stone to even higher borrowing costs. Economists polled by Bloomberg estimate that Fed rates will hit 5% by March, while the BOE could continue to rise to settle above 4%.

Again, recessionary concerns could further dampen policymakers’ enthusiasm for a vigorous hike. This is what happened with the Bank of Canada, which raised its rates by less than 50 basis points than expected.

In the United States, many economists will look to the labor market for evidence of a deepening slowdown. Nonfarm payrolls due Friday could show the economy added 190,000 jobs in October, the smallest addition since President Joe Biden’s administration began in January 2021.

What Bloomberg Economics says:

“With the architects of chaos no longer in power and the risk premium on UK assets fading, the pressure on the BOE to act aggressively has eased.”

–Dan Hanson. For a full analysis, click here

Elsewhere this week, a likely slowdown in euro zone growth, possible rate hikes from Norway to Australia and a further surge in Turkish inflation will keep financial markets busy.

Click here to see what happened last week and below is our summary of what is happening in the global economy.

Asia

China releases its PMI reports for October on Monday, with an expected pullback.

Market watchers will be watching the release of intervention figures Monday night closely to see how much Japan spent to support the yen in October, as the currency still hovers near its 32-year low.

Australia’s central bank chief Philip Lowe is expected to raise rates again on Tuesday as inflation continues to heat up faster than economists expected. Still, the RBA is more likely to opt for another quarter-percentage-point hike as it takes into account concerns about the impact on households and businesses of raising rates too quickly.

South Korea’s export figures will give a first sign of how global trade fared in October and how badly the cratering won is widening the country’s trade deficit.

Next day’s inflation figures will show if price growth continues to slow as the Bank of Korea raises rates.

Hong Kong will likely follow the Fed in raising borrowing costs, and commercial banks could follow suit by raising prime rates for the second time since September – another blow to consumer and business spending.

The central bank of Malaysia is also expected to raise its key rate for a fourth consecutive meeting.

Europe, Middle East, Africa

Whether or not eurozone data shows Monday that the economy grew in the third quarter, it will likely be the worst performance since the start of 2021, when the pandemic was still raging. The report could do even better than what comes next: Economists estimate that a recession has set in over the current three-month period.

Inflation data due simultaneously will illustrate the cost shock weighing on the region’s growth outlook, with the pace of consumer prices expected to pick up to a record high of 10.3% in the Eurozone.

Various speakers from the European Central Bank will make public remarks, days after raising rates by 75 basis points. They include Chief Economist Philip Lane on Monday and President Christine Lagarde, who will speak during her visit to the Baltic region later in the week. Lagarde tweeted on Saturday that defeating inflation “is our mantra, our mission, our mandate.”

In the UK, Prime Minister Rishi Sunak’s first full week in office is likely to feature continued speculation about spending cuts that could be unveiled in mid-November. Meanwhile, just as the BOE raises rates again, evidence of the detrimental impact on home loan approvals will appear in data on Monday.

Other central bank moves on Thursday include that of Norges Bank, which is expected to raise rates by at least a quarter point. Recent faster-than-expected inflation data has fueled speculation that Norway’s central bank may opt for a fourth consecutive half-point hike.

By contrast, the Czech central bank is likely to leave borrowing costs unchanged as policymakers believe they are high enough to rein in consumer prices.

In Poland, Monday’s inflation data could help determine whether central bankers will resume rate hikes. An acceleration to a new high of 17.8% is forecast by economists.

Looking south, Saudi Arabia – the fastest growing economy in the Group of 20 – will report third quarter growth figures on Monday as it reaps the benefits of higher oil prices. energy and is urgently seeking to pump money into building an economy that can thrive beyond oil.

In Kenya, Monday’s data will likely show inflation slowing for the first time in seven months. It is still expected to be above the upper end of the central bank’s 2.5% to 7.5% target range and to remain there until the first quarter of 2023. less, which could lead to a rate hike next month.

Turkey’s inflation on Thursday will likely show a further increase, to 86%, as the central bank’s unorthodox policy makes its benchmark rate increasingly irrelevant. The bank fell to 10.5% this month, giving Turkey the lowest negative real interest rate in the world. President Recep Tayyip Erdogan has called for a single-digit rate by the end of the year as he eyes elections in mid-2023.

Latin America

Mexico kicks off the week on Monday with its third quarter flash production report. Analysts expect quarter-over-quarter readings to be lower again after slowing to 0.9% in the three months to June. GDP remains below its pre-pandemic level.

Brazil’s central bank released fiscal figures on Monday, followed a day later by minutes of its Oct. 25-26 meeting. The decision to keep the policy rate at 13.75% for a second meeting is not a surprise, but the dramatic bout of deflation impacting the economy will put Brazil watchers on alert for any new future direction.

Reports on industrial production data and monthly trade are also due this week, while the outcome of Sunday’s presidential election will certainly grab investors’ attention.

In Peru, Lima’s inflation figures for October are expected to ease after a slight rise in September, while Chile’s economic activity data could show the economy contracted in the third quarter.

Colombia reports September unemployment and exports ahead of October central bank meeting minutes. Faced with the fastest inflation in 23 years, policy makers raised the key rate on October 28 for a 10th consecutive meeting, to 11%.

Analysts polled by the central bank are forecasting another half-point hike at the bank’s December meeting and a year-end inflation rate of 11.88%.

–With help from Malcolm Scott, Robert Jameson, Benjamin Harvey, Andrea Dudik, Reed Landberg, Alister Bull and Vince Golle.

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