Top 5 Things to Watch in the Markets in the Week Ahead By

© Reuters

By Noreen Burke — Investors’ attention will be entirely focused on the Federal Reserve over the coming week, with policymakers widely expected for a third consecutive 75 basis point rate hike on Wednesday. The Fed isn’t the only game in town – central bank policymakers from the UK, Switzerland and Japan will also meet during the week as the global fight against inflation intensifies. Meanwhile, US stocks look set for another volatile week amid fears that higher interest rates will see the economy struggling. Here’s what you need to know to start your week.

  1. Fed decision

Stronger-than-expected US figures for August cemented expectations of another giant rate hike from the Fed late on its Wednesday.

Markets have priced in a 75 basis point rate hike, but some investors are bracing for a full one percentage point hike – a move that was unthinkable until recently.

Market watchers will be watching closely for how the U.S. central bank views the current pace of monetary tightening, the strength of the economy and the likelihood that inflation will persist – as well as signs of how the balance sheet is unfolding. .

Some worry that the process, in which the Fed is shrinking its balance sheet by $95 billion a month, could hurt market liquidity and weigh on the economy.

  1. bank of england

Thursday’s meeting after last week’s meeting was delayed a week for Queen Elizabeth II’s funeral. Policymakers are expected to raise rates another 50 basis points, bringing the bank rate to 2.25%, although a 75 basis point hike is still on the table.

It will be the BoE’s first meeting since the announcement of a government cap on energy prices, which should see its inflation peak lower than it would have, but the injection of money in consumers’ pockets should keep it high for longer.

New Chancellor of the Exchequer Kwasi Kwarteng will deliver a ‘fiscal event’ on Friday – his first statement on how he plans to deliver on new Prime Minister Liz Truss’ pledge to make the UK a low-rate economy taxation, which risks fueling inflation.

The seemingly opposite directions of monetary and fiscal policy underscore the challenges facing Britain’s economy, which is the highest among major global economies but also at risk of tipping into recession.

  1. World central banks

Thursday’s meeting with officials expected to issue a 75 basis point rate hike matches the European Central Bank’s recent move, even as the eurozone far outpaces Switzerland.

Elsewhere in Europe, Norway’s central bank is expected to raise rates on Thursday as inflation continues to beat forecasts.

The also meets on Thursday amid speculation that Japanese authorities are set to intervene in the foreign exchange market to prop up dollar weakness, which hit a 24-year low against the dollar earlier this month.

The dollar was supported by the view that the Fed will continue to tighten policy aggressively, while the BoJ sticks to unprecedented easing.

  1. PMI data

The first glimpse of European business activity in September will come on Friday with the release of Eurozone and UK PMI data.

The bloc has already spent two months below the 50 level that separates contraction from expansion – a sign that the bloc could enter recession sooner than previously thought as the energy shock and monetary policy tightening bite.

Last Thursday, the global economy slowed sharply, and even “a moderate hit to the global economy over the next year could tip it into recession”, as central banks simultaneously raise interest rates to combat persistent inflation.

  1. US stocks

U.S. stocks ended in the red on Friday, posting their biggest weekly percentage declines since June, as concerns over inflation, looming interest rate hikes and ominous economic warning signs weighed .

US equity volatility this year shows no signs of abating as stubbornly high inflation data makes it likely the Fed will continue to raise interest rates faster and further than expected, which increases the risks of recession.

“As the market expects a big Fed rate hike next week, there is enormous uncertainty and concern about future rate increases,” JPMorgan chief executive David Carter told Reuters on Friday. New York. “The Fed is doing what it needs to do. And after some pain, markets and the economy will recover.”

-Reuters contributed to this report

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