(Bloomberg) — Jerome Powell’s remarks this coming week will be closely scrutinized by investors to see how long the Federal Reserve is willing to wait before cutting interest rates.
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The last time the Fed chairman spoke, he signaled that policymakers were likely to keep borrowing costs high for longer than previously expected, pointing to a lack of further progress in bringing down inflation and continued strength in the labor market.
The latest price data, which showed stubborn underlying inflation, along with expectations of a robust jobs report on Friday, are unlikely to prompt the Fed chief to change his tune.
Powell will address reporters after the Fed’s rate decision on Wednesday, with the central bank widely expected to keep borrowing costs at more than two-decade highs. Expectations for interest rate cuts have been pushed further into 2024, and investors are now betting on a maximum of two cuts by the end of the year.
The monthly jobs report capping the week offers a fresh look at the state of the US labor market. Economists see nonfarm payrolls growth moderating to a still strong pace in April amid steady, low unemployment.
What Bloomberg Economics Says:
“We expect Powell to make a hawkish pivot. At a minimum, he is likely to indicate that the average FOMC participant now expects ‘smaller’ cuts this year. In a more hawkish direction, he could hint at a chance of no cuts — or even suggest that an increase could be on the table, but not the current baseline.”
—Anna Wong, Stuart Paul, Eliza Winger & Estelle Ou, Economists. For full analysis, click here
We also get updates on a quarterly, closely watched measure of hiring costs, as well as monthly numbers on job openings and production.
Looking north, Canada’s gross domestic product data for February could show a slight boost to the economy, giving the Bank of Canada options as it considers when to pivot to easier policy.
Elsewhere, data from the euro zone may show that inflation stopped easing and the economy started to grow again, while Chinese surveys will point to the strength of the expansion there. Central banks from Norway to Colombia will set rates, while the Paris-based OECD publishes new global forecasts on Thursday.
Click here for what happened last week, and below is our wrap of what’s coming up in the global economy.
Asia
China shed light on prospects for building on economic expansion in the first quarter with the release on Tuesday of official purchasing managers’ index data. The report will indicate whether manufacturing activity grew for a second month in April.
There may be some seasonal softness due to fewer working days, but the overall momentum is likely to point to a continued recovery, according to Bloomberg Economics. Same-day delivery is the Caixin gauge, which has hovered above the 50 threshold that separates expansion from contraction for five months.
Global trade will be in the spotlight as Australia, South Korea, Thailand, Sri Lanka and Vietnam all publish trade figures during the week.
Japan will get a flurry of data on Tuesday that is expected to show industrial production rebounded in March, with retail sales and the jobless rate also set for release.
And South Korea’s consumer inflation data on Thursday is expected to show price growth slowing slightly while remaining above the Bank of Korea’s target, giving the central bank an added incentive to delay any policy turnaround.
Meanwhile, Thai Prime Minister Srettha Thavisin named capital markets veteran Pichai Chunhavajira as the country’s new finance minister in an appointment that could ease tensions between the prime minister and the central bank over monetary policy.
Europe, Middle East, Africa
In the euro area, data may show that the slowdown in inflation stalled in April for the first time this year. Consumer prices likely rose 2.4% from a year earlier, matching the result for March, amid rising energy costs.
The underlying measure, which strips out such volatile elements, can give officials reassurance that the direction of travel is still downward, although national numbers are likely to reveal some divergence. Germany and Spain, which publish their data on Monday, may have seen faster inflation.
The Eurozone report comes on Tuesday, along with the latest GDP figures. Economists reckon the region was likely to return to a meager 0.1% growth in the first quarter after the shallow recession it suffered in late 2023.
As with inflation, Tuesday’s numbers may mask uneven results across the region. For a taste of that, investors are likely to keep an eye on Ireland’s growth data on Monday, which has a history of volatility.
Overall, the reports echo European Central Bank President Christine Lagarde’s assertion this month that the economy is weak and faces “bumps in the road” for the path of inflation.
Switzerland will release consumer price data on Thursday, which could show inflation staying well below the central bank’s 2% ceiling.
And the next day in Turkey, investors will be watching for progress in curbing consumer price growth.
Most of the market sees Turkish inflation continuing to rise from March’s 68.5% to around 75% in the coming months, despite nearly a year of aggressive rate hikes. Until the gains slow, bond investors are unlikely to rush back into the market for lira debt, a key target for Turkey’s government.
A trio of monetary decisions are taking place across the wider region:
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On Tuesday, Malawian officials may be persuaded to raise key interest rates again to curb inflation that is likely to remain elevated due to crop damage from adverse weather conditions.
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The Czech central bank will reveal its latest decision on Thursday, with policymakers expected to cut borrowing costs by 50 basis points.
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The following day, Norges Bank may keep the deposit rate on hold after Norway’s economy developed better than expected, although inflation slowed faster than expected. Investors will be watching for clues about whether policymakers will be more cautious about starting to cut borrowing costs this fall.
Latin America
Mexico’s first-quarter flash output data is likely to show the economy contracted slightly in the three months to December. Analyst consensus sees growth slowing for a third year in 2023 to around 2.4% from 3.2% in 2023.
Brazil will publish a series of reports, including the broadest measure of inflation, the central bank’s expectations survey, the balance of payments, industrial production and the national unemployment rate.
Since last June, unemployment in Latin America’s largest economy has been below 8%, which is considered by many Brazilian observers to be the economy’s non-accelerating rate of jobless inflation.
Chile releases a number of indicators for March, including retail sales, unemployment, industrial production, manufacturing, copper production and GDP proxy figures. Stronger-than-expected growth and a rise in inflation led the central bank to slow the pace of easing earlier this month.
In Peru, the April inflation report for the country’s megacity capital Lima may show that prices are finally back in the tolerance range of 1% to 3%, while still above the 2% target.
Colombia’s central bank is widely seen extending its easing cycle by half a point in a row, which would cut the key rate to 11.75% amid a steady process of disinflation. BanRep will also publish its quarterly inflation report, update growth and inflation forecasts as well as provide a revised monetary policy outlook.
–With assistance from Ott Ummelas, Robert Jameson, Laura Dhillon Kane, Vince Golle, Patrick Donahue, Brian Fowler, Monique Vanek and Paul Wallace.
(Updates with new Thai finance minister in Asia section)
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