Go Big or Go Home – Reuters

(Reuters) – Additional interest rate cuts are anticipated in Switzerland and Sweden following a significant rate adjustment by the U.S. Federal Reserve. With U.S. inflation data and global business activity surveys indicating forthcoming pressures, markets are on alert.

In political developments, Japan’s ruling party is in the process of selecting its new leader, who will subsequently become the prime minister. Meanwhile, voters in Sri Lanka have elected a new president.

Here’s a look at the upcoming week in global markets, presented by Lewis Krauskopf in New York, Kevin Buckland in Tokyo, and Libby George, Amanda Cooper, and Dhara Ranasinghe in London.

1/ FRONT-LOADERS

Central banks in Sweden and Switzerland are preparing for upcoming rate cuts as part of the ongoing trend for 2024. Analysts expect both institutions to reduce benchmark rates at their meetings this week, with a strong likelihood of significant cuts made sooner rather than later, which could lead to minimal adjustments in 2025.

The Swiss National Bank was the first major central bank to implement a rate cut back in March. Market speculation varies regarding the extent of the anticipated cut on Thursday. The Swiss franc’s recent appreciation, reaching levels not seen since 2015, poses challenges for the SNB as inflation remains below forecasted levels.

Conversely, Sweden’s Riksbank is almost certain to proceed with a 25-basis-point cut this Wednesday, particularly as inflation has fallen significantly below the target range, with discussions of a potential 50-basis-point cut occurring in November.

2/ INFLATION IN FOCUS

The Federal Reserve’s preferred inflation measure, set to be released on September 27, will indicate whether price pressures continue to lessen as the Fed begins to ease its previously stringent monetary policy aimed at cooling the economy.

The Personal Consumption Expenditures (PCE) price index for August is expected to show a 2.5% annual increase, according to a Reuters poll. Future forecasts from the Fed suggest the annual rate could drop to 2.3% by year-end and 2.1% by the end of 2025.

Investors will also receive new data on consumer confidence and durable goods in the coming week.

3/ RECESSION WATCH

Flash business activity figures starting on Monday will provide crucial insights into the global economic climate. A survey indicates that business activity in the Euro zone unexpectedly contracted this month, with the services sector stagnating and manufacturing experiencing a notable downturn.

Currently, markets appear optimistic that the recent half-point rate cut by the Fed might prevent a U.S. recession and, by extension, a global economic downturn. Economists polled estimate the likelihood of a recession at around 30%, a number that hasn’t changed significantly throughout the year.

However, not all indicators are positive. In Germany, the PMI has fallen deeper into contraction territory, and economic sentiment remains low. Additionally, ongoing struggles within the Chinese economy could pose further challenges.

4/ PICKING A PREMIER

Japan’s ruling party will select a new leader—and consequently a new prime minister—on September 27, with a competitive field of nine candidates, three of whom are seen as frontrunners with differing policy perspectives.

Sanae Takaichi aims to be the country’s first female prime minister and has criticized the Bank of Japan for raising rates too soon. On the other hand, Shigeru Ishiba advocates for past monetary stimulus adjustments and believes the central bank has effectively pursued rate hikes. Shinjiro Koizumi, the son of the former prime minister, has indicated support for the Bank of Japan’s independence without taking a clear stance.

The leadership contest adds complexity to the central bank’s decision-making, especially with a potential snap election on the horizon in late October.

5/ TOO CLOSE TO CALL

Sri Lankan voters have elected leftist leader Anura Kumara Dissanayake, who has promised significant changes for the debt-ridden nation.

While the Sri Lankan economy is recovering and expected to grow next year, the austerity measures and difficulties faced by citizens under the previous administration led many to turn away from incumbent Ranil Wickremesinghe.

Investors are wary that Dissanayake’s inclination to renegotiate the terms of the International Monetary Fund bailout could delay further financial support, as well as his plans to revisit a recently finalized debt deal with bondholders.

(Reporting by Prinz Magtulis, Sumanta Sen, and Vineet Sachdev; Compiled by Karin Strohecker; Edited by Christopher Cushing and Mark Heinrich)