Key Events: Fed to Cut 25bp, BoE and BoJ to Hold

Key Events

G10

In the US, the main data points are:

1. Retail sales – Tuesday. With services spending growing faster than goods, retail sales have printed below consumption for the past couple of years. Therefore, the consensus forecast of 0.3% MoM for the retail sales control group is consistent with continued above trend consumption growth.

Elsewhere, the main events will be:

1. UK inflation – Wednesday. While wage growth is slowing as expected, the BoE will want to see further progress on services inflation this month.
2. Canada inflation – Tuesday. Given the special mention by the BoC, pay attention to rents as well as the BoC’s preferred measures of core CPI-Trim and CPI-Median this month. 0.2% MoM is the breakeven to hit their YE 2024 forecast.
3. Japan inflation – Friday. Following a stronger JPY, more focus will be on services inflation that is expected to take the mantle from goods inflation going forward.

EM

4. Disinflation to continue in South Africa – Wednesday. Lower fuel prices and a stronger rand should mean another drop in YoY inflation this month.

Central Banks in Action

1. Fed to cut 25bp – Wednesday. The balance of economic gains vs political costs suggests the Fed is likely to start its easing cycle with 25bp.
2. BoE to remain on hold – Thursday. Expect the BoE to lean dovish despite staying on hold. We expect the next cut to occur in November.
3. BoJ to remain on hold – Friday. Governor Ueda is likely to highlight the positive trajectory of wage growth while confirming further hikes are likely in the future.
4. CBRT to remain firmly on hold – Thursday. Inflation is down sharply in recent months and growth has slowed. But with inflation expectations still above CBRT forecasts, we expect another hawkish hold.
5. SARB easing to commence – Thursday. Inflation now close to the target’s midpoint and declining inflation expectations will allow for the first 25bp rate cut.
6. BI to cut 25bp – Wednesday. Market is split with the majority expecting a hold. Tightening cycle was aimed at IDR stability and with Fed now close to cutting and IDR having strengthened, we expect BI to forge ahead with a 25bp cut.
7. PBoC to hold 1Y MLF and LPR (date unknown). PBoC has signalled more easing. We expect an RRR cut this month and rate cuts in October, though it would not be a big surprise if they cut next week.
8. BCB set to hike – Wednesday. BCB has signalled a hike at next week’s meeting. Market expects 25bp, which will help stabilize BRL.

Markets to Watch

1. Chinese assets. China’s stock market is close to this year and post-covid lows, and 10y bond yields are at record lows. Further declines will increase the angst over weak Chinese demand for commodities.
2. With BCB set to hike on the same day the Fed will cut, markets are set to fall in love with the BRL carry trade again.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)