Take Five: Bring out the central bank heavyweights
1 / CENTRALIZED
Several big names in the central bank will meet in the coming days, with the US Federal Reserve meeting on September 21 and 22 at the top of the must-see list.
The timing of the Fed’s phased-in US cuts remains the key question, and recent data suggests caution is in order: the US economy created the fewest jobs in seven months in August and prices at consumption increased at their slowest rate in six months.
Several officials say the Fed’s cutback to its pandemic stimulus package will begin this year, an opinion Fed chief Jerome Powell can echo, while pointing out that an interest rate hike is still a long way off.
The Bank of Japan, which also meets on Tuesday and Wednesday, will keep its policy stable but may well warn of growing risks to exports from supply disruptions.
– US inflation stops as prices slowly rise in August read more
– BOJ to maintain stimulus measures as supply disruption darkens export outlook read more
2 / THE FIRST AND THE LAST
Confirmation that a large central bank is raising interest rates rather than talking about it will be meaningful to markets addicted to cheap liquidity. Norway’s central bank is expected to become the first in the developed world to hike rates since the pandemic on Thursday, likely raising its main rate from 0% to 0.25%.
The Bank of England is unlikely to change its policy, but with consumer price growth reaching a 9-year high in August, traders are forecasting a rate hike next May. The BoE could signal at its meeting on Thursday whether it still views inflation as transient.
We will also hear from the laggards – Switzerland is only likely to start reducing its balance sheet or raising rates, the lowest in the world, long after the others. Sweden is expected to keep rates at 0% until 2024, but its monetary policy announcement on Tuesday may well reflect a revision after strong inflation readings.
– UK inflation jumps to a 9-year high in August
3 / EVERGRANDE END OF THE GAME?
Money-strapped Chinese real estate developer Evergrande (3333.HK) is due to make $ 120 million in bond coupon payments.
That such a small amount could be the tipping point for a $ 355 billion giant with over 1,300 developments across China and over $ 300 billion in liabilities shows how bad things are.
China’s no. Developer 2 has been scrambling to raise funds, with flaring sales of apartments and sales of stakes in its sprawling commercial network, but with little success.
As it oscillates between a messy collapse, a managed collapse, or – the less likely – a government bailout, the risk of contagion is the center of attention. Hong Kong-listed Evergrande shares have plunged more than 80% this year; a Chinese dollar high yield debt index (.MERACYC) is at a 17-month low.
– Investors brace for big drop in China read more
4 / PMI DELTA
Purchasing Managers’ Indices, an oft-used indicator of economic growth and corporate sentiment, are well above historical averages, but early readings for September – expected in many countries on Thursday – will likely show PMIs move further away from the highs reached earlier this year.
The Delta COVID-19 variant, supply chain bottlenecks and soaring input costs have appeared in PMIs in recent months. IHS Markit’s eurozone manufacturing PMIs, for example, slipped in August to 61.4 from 63 in July, and are expected to decline further this month to 60.5.
A JPMorgan Global Composite PMI Index stood at 52.6 in August, six points off the record set in May. It’s still healthy readings, above the 50 mark that separates growth from contraction, so central bankers meeting in the next few days probably have no reason to worry just yet. .
-Factories affected by supply disruptions linked to the pandemic find out more
5 / PLAYER
Canadian Prime Minister Justin Trudeau has gambled by calling an early election, but opinion polls indicate it could backfire.
Ahead of Monday’s vote, Trudeau’s Liberals are virtually tied with opposition Tories, suggesting that no party will be able to form even a stable minority government.
The prospect of a deadlock hampering Ottawa’s response to COVID-19 is causing some anxiety – the Canadian dollar has lost 1% since Trudeau called the vote in mid-August (two years ahead of schedule) and stocks are near their three week low.
Political uncertainty looms elsewhere as well, with the September 26 elections in Germany potentially leading to protracted coalition talks.
– Investors are straining as fears of a post-election stalemate increase in Canada read more
Reporting by Lewis Krauskopf in New York; Kevin Buckland in Tokyo, Tommy Wilkes, Sujata Rao and Dhara Ranasinghe in London; Compiled by Dhara Ranasinghe; Editing by Ana Nicolaci da Costa
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