After the European Central Bank opted for a 0.25% rate cut last week, this week brings four major central bank interest rate decisions from the Fed, the Bank of England, the Bank of Japan, and the People's Bank of China.
Additionally, decisions are also due from smaller central banks in Brazil, Norway, Turkey, Taiwan, Indonesia, and South Africa.
All in all, it’s a central bank extravaganza, but the big four (among the world’s five major central banks) will dominate the week.
And the Reserve Bank of Australia? Its next two-day meeting is scheduled for a week from today and tomorrow. By then, its monetary policy stance will be very much at odds with what is happening in other major economies.
In other words, a rate cut looms — except for Japan, where a possible rise may occur, though perhaps not until next month.
The Fed’s cut is locked in — probably 0.25%, but possibly 0.50% if the Fed feels a point needs to be made about rewarding the economy and emphasising that inflation is easing and expectations are falling.
The International Monetary Fund gave its approval for a US rate cut last Thursday, stating that it was appropriate for the Fed to begin a long-awaited monetary easing cycle at this week’s meeting, as upside risks to inflation have subsided.
The US economy grew at a healthy 3% annual rate last quarter, fuelled by strong consumer spending and business investment, according to the second estimate of June quarter GDP.
That figure was up from the first estimate of 2.8% for the April-June period, which was sharply better than the sluggish 1.4% growth rate in the first three months of 2024.
In the UK, the Bank of England might face more difficulties in implementing a rate cut. It may wait until after the Starmer government’s autumn statement (budget), due on October 30.
The BoE meets on Thursday, and discussions about the timing of the next cut will likely dominate.
However, the UK economy is in need of a stimulus from a rate cut, as the new Starmer government plans to reduce spending, cut energy subsidies, and raise taxes and charges on the wealthy.
The UK’s Office for Budget Responsibility releases its new forecasts on October 30, which may be another reason for the BoE to hold off until November.
The Bank of Japan meets on Friday and probably won’t raise rates, despite its first hike in years this past July.
In a historic move, the BoJ ditched negative interest rates in March and raised short-term rates to 0.25% in July, based on the view that the economy was making progress towards achieving its 2% inflation target.
Japan’s economy grew at an annual rate of 2.9%, slower than the earlier report of 3.1% growth, during the April-June period. The growth was boosted by improved wages and spending, revised government data showed Monday.
Additionally, the rate rise in late July by the Bank of Japan caused the collapse of the lucrative yen carry trade, leading to sharp declines in global markets for a few days.
That’s why Friday’s meeting will be closely watched — there’s likely more fear and loathing surrounding this decision than any other central bank announcement this week.
The People’s Bank of China will announce its decision on its one-year and five-year prime rates on Friday. These are currently set at 3.35% and 3.85%, respectively. The weakness in the economy, along with the rising tide of disinflation, would normally prompt a rate cut (which should have happened last week).
Chinese stock markets touched six-year lows on Friday, but President Xi Jinping seems indifferent to investors and listed companies, as well as the property crunch.
However, he is very concerned about a restless population. The future of the Communist Party’s dominance is being pressured by recalcitrant consumers, parents, and workers who refuse to have more children, threatening to exacerbate the country’s population decline.
That’s why the retirement age is being gradually increased — over 15 years until 2040 — as Xi seeks to avoid stirring up too much opposition, particularly from the younger generation, which is reportedly unhappy, according to social media posts over the weekend.
Here in Australia, the most important data release will be the August jobs data on Thursday. The market is expecting an unchanged unemployment rate of 4.2% and around 30,000 new jobs, following the surprising 58,200 new jobs reported for July.
There are also a couple of results due on July 31: coal miner New Hope tomorrow and department store retailer Myer on Friday.
In the US, some notable results include FedEx, General Mills, ConAgra, and home builder Lennar.
