Global Rate-Cut Juggernaut Is Struggling to Start

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(Bloomberg) — Central banks wary about joining the global interest rate cutting cycle may reveal themselves this week with a quartet of decisions in advanced economies.

Days after the Federal Reserve lowered its forecast for US monetary easing this year, policymakers from the UK to Australia are likely to signal they still aren't convinced enough about lowering inflation to start lowering borrowing costs themselves.

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Such results would reaffirm how June, originally scheduled to be a month-long opening ceremony for a series of global interest rate cuts, may increasingly turn into a widespread display of indecision.

While Canada implemented the first such G7 step on June 5, the European Central Bank's reduction in borrowing costs the next day, accompanied by higher inflation expectations, showed limited enthusiasm for further easing.

At the Bank of England on Thursday, the looming election and some persistent price pressures make it more important to wait until at least August before cutting interest rates.

Their peers in Australia and Norway, who are also meeting this week, are in no rush to do so either, while half of the economists surveyed believe the Swiss National Bank may avoid a second cut for now after its bold move in March to ease monetary policy on its neighbours.

Decisions elsewhere may reflect the different stages of global monetary cycles, with Brazil and Paraguay expected to keep borrowing costs unchanged, and Chile expected to slow interest rate cuts.

What Bloomberg Economics says:

“Major central banks appear set to keep interest rates unchanged, after looking more likely to cut them just a few weeks ago. The Bank of England will almost certainly keep policy unchanged in June ahead of the UK election. It's a closer call for the Swiss National Bank.”

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-For the full analysis, click here

Elsewhere, US retail sales, a slew of Chinese data and inflation numbers from the UK and Japan will be among the highlights for investors this week.

Click here to see what happened last week. Below is a summary of what will happen in the global economy.

United States and Canada

A week after a series of reports showed moderating inflationary pressures in the United States, investors will take a look at new numbers on consumer demand, the housing market and industrial production. Fed officials are also returning to the public speaking circuit after envisioning just one rate cut for 2024.

Policymakers speaking this week include: Thomas Barkin, Susan Collins, Lisa Cook, Mary Daly, Austen Goolsby, Patrick Harker, Neel Kashkari, Adriana Kugler, Lori Logan, Alberto Muslim, and John Williams.

Retail sales figures released on Tuesday are expected to show that shoppers have re-engaged somewhat in May after falling the previous month, underscoring consumer resilience. Separate data shows an increase in production at the country's factories, mines and public utilities.

On Thursday, housing construction data may show a modest increase in construction work in May compared to the previous month, as builders adjust to fluctuations in underlying demand while remaining cautious on inventories.

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The limited number of listings on the resale market, combined with the recent rise in mortgage rates, is impacting existing home sales. On Friday, the National Association of Realtors is expected to report another decline in sales of previously owned homes.

Looking north, the Bank of Canada will release a summary of the deliberations leading up to the rate cuts this month, providing more insight into how policymakers reached the decision and terms for a rate cut at their next meeting on July 24.

Statistics Canada will publish population estimates for the first quarter, and retail sales data will also provide new insight into the strength of the Canadian consumer.

• For more, read next week's full US report from Bloomberg Economics

Asia

The week begins in Asia with a deluge of monthly data in China on Monday. The figures are likely to show that gains in industrial production and retail sales in May were slightly below the pace for the year to date, while the increase in investment in fixed assets remained steady at 4.2% and the decline in property investment deepened slightly.

A day later, the Reserve Bank of Australia is expected to keep its interest rate target at 4.35%, focusing on how authorities view the path of inflation after consumer price growth unexpectedly rose in April.

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A slowing pace of inflation declines will likely delay a pivot to rate cuts or spur another rate hike, according to Bloomberg Economics.

Japan's main price gauge is expected to show consumer inflation accelerated to 2.6% in May, keeping the Bank of Japan on track to raise interest rates as early as next month.

New Zealand's economic growth may have returned to positive territory in the first quarter after two successive periods of modest contraction.

Japanese trade data on Wednesday may show export growth in May accelerated to the fastest clip since November 2022.

Singapore, Malaysia, South Korea and Indonesia also receive trade statistics. The week concludes with explosive PMI numbers for Australia, Japan and India.

• For more, read Bloomberg Economics' full report on next week for Asia

Europe, Middle East, Africa

In the UK, consumer price figures on the eve of the Bank of England's decision on Thursday may draw investors into focus. This report may show inflation reaching the 2% target for the first time in nearly three years.

But with the so-called core measure likely to reach above 3% and the election campaign underway, economists expect policymakers to keep borrowing costs unchanged. Their decision in August, which includes new forecasts, may provide a more appropriate moment to start cutting interest rates.

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The Swiss Central Bank's decision is also scheduled to be issued on Thursday. Economists are evenly divided on whether or not officials will lower borrowing costs in a second straight quarterly cut. Keeping it suspended would protect against any acceleration in inflation and avoid a depreciation of the franc.

On the same day, the Norwegian central bank is widely expected to keep interest rates at 4.5% for the fifth meeting in a row. Investors may be focusing on how improving economic activity and rising wage pressure will delay plans to reduce borrowing costs, with some suggesting no action until next year.

Heading east, Hungary is poised to end a monetary easing cycle that has lasted more than a year, although a decline in the forint could narrow or eliminate the central bank's room for a final cut in the EU's top key rate. That's Tuesday.

In the euro zone, the standout data is likely to be the latest set of June PMIs, which will be released on Friday, which may indicate whether the region's economic recovery is gaining momentum.

ECB officials scheduled to speak include President Christine Lagarde and Chief Economist Philip Lane on Monday, and Vice President Luis de Guindos on Tuesday.

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Another major event, taking place against the backdrop of the market turmoil that has plagued France last week, is the European Commission's ruling on Wednesday censuring countries in the region for breaching the 3% deficit limit.

Financial turmoil is likely to be a major topic when euro zone finance ministers meet in Luxembourg later this week.

Further into the region: In South Africa on Wednesday, inflation is expected to hold steady at 5.2% in May. Meanwhile, neighboring Namibia is expected to keep its interest rate at 7.75% amid accelerating consumer price growth and protect its rand currency.

• For more, read next week's full Bloomberg Economics report for the EMEA region

latin america

Chile's central bank on Tuesday is likely to cut its key lending rate for the eighth straight meeting although it may slow the pace of easing and offer a quarter-point cut to 5.75%.

Policymakers in Paraguay are also meeting this week and may choose to keep the key interest rate unchanged at 6% for the third meeting in a row after consumer prices accelerated to 4.4% in May from 4% in April.

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In Mexico, much of the focus will be on the presidential transition from Andrés Manuel López Obrador to Claudia Sheinbaum and the potential political fallout that has investors worried.

The weakness seen in March retail sales and GDP data is expected to extend into April reports published this week

Colombia's economy rebounded less than expected in the first quarter while recording negative GDP readings on a monthly basis in February and March. April data due this week could show activity picking up at the start of the second quarter.

In Brazil, the central bank on Wednesday may draw a line under its 325 basis point easing cycle and keep the benchmark Selic index at 10.5% amid unstable inflation expectations and growing concerns about government spending.

Analysts now expect the key interest rate to reach 10.25% by the end of 2024, representing a 125 basis point increase in interest rate expectations since March, while the swap market is now already anticipating monetary policy tightening towards the end of the year.

• For more, read the full Latin America Week from Bloomberg Economics

-With assistance from Brian Fowler, Vince Juhl, Robert Jameson, Laura Dillon Kane, Piotr Skolimowski, Ott Omelas, and Monique Vanek.

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