Top 5 things to watch in the markets next week

Top 5 things to watch in the markets next week

Written by Noreen Burke – Investors will focus squarely on the Federal Reserve next week, as policy makers widely expect a third consecutive rate hike of 75 basis points on Wednesday. The Fed isn’t the only game in town – central bank policy makers in the UK, Switzerland and Japan will also meet during the week as the global fight against inflation intensifies. Meanwhile, US stocks appear set for another volatile week amid fears that higher interest rates will send the economy into trouble. Here’s what you need to know to start your week.

  1. Federal Reserve decision

The higher-than-expected numbers in the US for August reinforced expectations for another rate hike from the Federal Reserve at its conclusion on Wednesday.

Markets have priced a rate hike of 75 basis points, but some investors are preparing for a full percentage point hike — a move that would have been unimaginable a while ago.

Market watchers will be on high alert for how the US central bank views the current pace of monetary tightening, the strength of the economy, and how likely inflation is to persist – as well as signs of how the balance sheet unwinding will proceed.

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.

  1. Bank of England

Thursday’s meeting was postponed after last week’s meeting for a week for Queen Elizabeth II’s funeral. Policy makers are expected to raise interest rates by another 50 basis points, which will raise the bank rate to 2.25%, although a 75 basis point hike is still on the table.

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It will be the first meeting of the Bank of England since the government announced the energy price cap, which is expected to see a lower peak of inflation than otherwise, but the injection of money into consumers’ pockets is likely to keep it high for longer. .

On Friday, new Chancellor of the Exchequer Kwasi Quarting will deliver a “financial event” – his first statement on how he plans to deliver on new Prime Minister Liz Truss’ pledge to make the UK a low tax economy, which risks stoking inflation.

The seemingly opposing directions of monetary and fiscal policy underscore the challenges facing the British economy, which has the highest ratio among the world’s major economies but is also at risk of slipping into recession.

  1. global central banks

On Thursday, he is expected to meet officials who expect a rate hike of 75 basis points, in line with the European Central Bank’s latest move even though the eurozone is far ahead of Switzerland.

Elsewhere in Europe, Norway’s central bank is expected to raise interest rates at its rate on Thursday as inflation continues to exceed expectations.

It also meets on Thursday amid speculation that Japanese authorities are about to intervene in the foreign exchange market to support the weak, which hit a 24-year low against the dollar earlier this month.

The dollar received support from the view that the Federal Reserve will continue to tighten policy aggressively, while the Bank of Japan sticks to the unprecedented easing.

  1. PMI . data

The first look at European business activity in September comes on Friday with the release of PMI data from the Eurozone and the UK

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It has already spent two months below the 50 level separating contraction from expansion – a sign that the bloc may enter a recession earlier than previously thought as an energy shock and monetary tightening.

Last Thursday, the global economy was slowing sharply, and even a “moderate blow to the global economy over the next year could push it into recession” as central banks at the same time raise interest rates to combat persistent inflation.

  1. US stocks

US stocks closed in the red on Friday with the biggest weekly percentage drop since June on inflation fears, interest rate hikes imminent and ominous economic warning signs appearing.

Volatility in US stocks this year shows no signs of abating as higher inflation data makes it likely that the Fed will continue to raise interest rates faster and more than previously expected, increasing the chances of a recession.

“While the market is anticipating a significant jump in Federal Reserve rates next week, there is tremendous uncertainty and concern about future interest rate increases,” David Carter, managing director at JPMorgan in New York, told Reuters on Friday. “The Fed is doing what it needs to do. After some pain, the markets and the economy will heal themselves.”

-Reuters contributed to this report

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