Take Five: Central Bank Mine

Take Five: Central Bank Mine

(Reuters) – A batch of central bank decisions from the United States to Japan, Britain, Switzerland and Brazil to South Africa will keep markets moving in the coming days.

Forward-looking PMIs from a range of countries will provide clues to how volatile global growth really is. Will Ukraine’s light counterattack change the course of its conflict with Russia?

Here’s a look at next week’s markets from Kevin Buckland in Tokyo, Vineet Sachdev in Bangalore, Dara Ranasinghe, William Schomberg, Vincent Flassor and Karen Stroecker in London, and Ira Yusbashvili in New York:

1 / full on nutrition

The Federal Reserve’s main meeting became more important after stronger-than-expected inflation data raised expectations about how strong policy makers can handle consumer prices.

A 75 basis point increase is set for Wednesday, but some are preparing to raise a full percentage point – a move that would have been unimaginable just days ago.

Fed Chair Jerome Powell’s stance on the pace of monetary tightening, economic resilience, and the sustainability of inflation will be crucial – as will signals on how to unwind the balance sheet. Some worry that the operation, in which the Federal Reserve cuts its balance sheet by $95 billion a month, could damage market liquidity and affect the economy.

The Fed’s next step

2 / uber-pigeon

Next is the Bank of Japan’s decision on Thursday. The price gap between the US and Japan is set to yawn beyond 3% as the global Bank of Japan clings to unprecedented easing.

This level fueled the fad of carry trade before the global financial crisis. Some are warning that it is set to rise again, putting additional pressure on the yen at a 24-year low, as gay Ms. Watanabe unleashes some of the quadrillion yen ($7 trillion) piled under her mattress.

Even the currency’s accelerated weekly decline against the dollar has even provoked the governor of the Bank of Japan who supports yen weakness, Haruhiko Kuroda, to warn of “unfavorable” rapid moves.

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The central bank recently contacted lenders to inquire about exchange rates, and considered it one of the last steps before intervening in the currency. Analysts see little chance of this succeeding, with significant yen weakness created by the Bank of Japan.

The Swiss National Bank also meets on Thursday and is expected to raise rates again – a move that could make Swiss interest rates positive for the first time in eight years.

When doves cry

3/ Back to work

The ability of the Bank of England and Britain’s new finance minister, Kwasi Quarting, to manage an economy in decline faces a major test.

The Bank of England is set to raise interest rates on Thursday – by 50 basis points or perhaps 75 basis points – to fight inflation. On Friday, Kwarteng is expected to deliver his first financial statement to deliver new Prime Minister Liz Truss’s pledge to reverse April’s increase in Social Security contributions and a planned increase in corporate tax. Tax cuts can lead to higher prices.

The opposing trends of monetary and fiscal policy underscore the challenges facing Britain, which has the highest inflation rate among the world’s major rich nations and is facing a recession. Traders, who recently pushed the pound to a four-decade low, are watching closely.

Bank of England under pressure to raise again

4/hour slack

The first snapshot of September’s business was released worldwide on Friday. To be sure, closely watched PMIs from a handful of major economies will likely confirm what many now think: the global economy is heading for a recession.

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The Eurozone PMI is already below the 50 mark that separates contraction from expansion – a sign that the bloc may enter a recession earlier than previously thought due to the energy shock and monetary tightening. With Italy’s September 25 elections looming, the bloc’s economic outlook is more focused.

Government efforts to mitigate rising energy prices may help ease recession fears. Then again, for some observers, markets need to start taking recession risks more seriously.

Recession looms

5/ Back to back

Ukraine’s recent light counterattack – which, according to how, liberated about 8,000 square kilometers of territory – brought new impetus to the first European war in seven decades.

Russian forces suffered a stunning reversal with Ukrainian special forces in the northeastern Kharkiv region, forcing them to withdraw quickly and at times chaotically.

The events sparked rare expressions of opposition to President Vladimir Putin by Russia’s elected representatives.

Markets are trying to gauge Russia’s reaction and how the repercussions of recent events could play out in global markets, especially energy prices, as Europe is already preparing for a recession.

EU missile energy bill

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