World braces for tectonic shift as rates head south

Bloomberg

The world economy's tectonic plates will shift this week when a US easing cycle begins, just as officials from Europe to Asia set policy against a backdrop of brittle markets.

A 36-hour monetary rollercoaster will start with the Federal Reserve's probable decision to cut interest rates on Wednesday, and finish on Friday with the outcome of the Bank of Japan's first meeting since it raised borrowing costs and helped sow the seeds of a global selloff.

Along the way, central banking peers in the Group of 20 and beyond that are poised to adjust their own policy levers include Brazil, where officials may tighten for the first time in 3 1/2 years, and the Bank of England. The UK central bank faces a delicate judgment on the pace of its balance-sheet unwind, and may also signal how ready it is to ease further.

South African policymakers are anticipated to cut borrowing costs for the first time since 2020, while counterparts in Norway and Turkey may keep them unchanged.

The Fed decision will take center stage, with bond traders are once again ramping up wagers on a half-point interest-rate cut by the Fed, just days after that bet seemed all-but-over.

The likelihood of a 50-basis-point move climbed to 40 percent last Friday, up from as low as 4 percent earlier in the week. The repricing added to a rally in US government bonds, lifted small-cap stocks and weighed on the US dollar.