Asia Pacific Markets – Japan and China in Focus
The Bank of Japan will probably keep the interest rate the same this week. Exports have been slipping, maybe because US tariffs are still biting. Imports could drop too, since global commodity prices seem to be falling. Because exports stay weak, the BoJ may leave its 0.5% policy rate unchanged on Friday in my opinion.
The bank still needs some time to see how new US‑Japan trade deal works out. Consumer price numbers are likely to ease to about 2.9% year‑over‑year in August, thanks to last year’s high base. Core inflation, which leaves out food and energy, might stay above 3%, which could help a rate rise in October. Governor Ueda won’t say anything hawkish, given the fluid political scene. Some analysts think the weak export data could hurt consumer confidence, which may slow growth.
China will publish its August numbers on Monday. Retail sales are expected to bounce back, around 4% higher than a year ago. At the same time, industrial output probably keeps slipping, perhaps down 5.6% year‑over‑year. Fixed‑asset investment may also fall, about 1.5% down so far this year.
Housing price data from about 70 cities should show that the downtrend has continued for a few months. Poor weather was often blamed for the weak July figures. Therefore, August’s data will be a key test to see if the slowdown was just a blip or a longer trend.
Federal Reserve, Bank of England (BoE) and Bank of Canada (BoC) in Focus
The Fed meeting on Wednesday gets our attention. Inflation still feels high, but the job picture may be getting worse. Over the last four months we have only seen modest job growth, and a recent revision even hints that more than half of the jobs reported added by March weren’t real. That suggests the labor market is softer than it first seemed.
A cooler economy and a weaker jobs market could ease the price pressure that comes from tariffs. The Fed therefore might move away from its “somewhat restrictive” stance toward a more neutral stance. According to LSEG data, there is 95% probability of a 25‑basis‑point cut, pulling rates down toward 3.25% by March, down from the current 4.5% ceiling.
Retail sales data, due Tuesday, looks likely to stay low because consumers feel uneasy and car sales keep dropping. Industrial output could still shrink again, as the latest manufacturing survey points to another dip.
The jobs market feels like a wild card for the Bank of England.
We will be watching payroll numbers for any sign of weakness.
Recent surveys have been getting better, which may mean the worst is over, but the autumn could still bring risk.
Also we need to see if wage growth is finally easing.
Looking at the UK and Inflation data due Wednesday is another focus.
The BoE is especially nervous about food prices, and those numbers are likely still to sit above five percent. Services inflation, on the other hand, might inch lower. If that happens, the report probably won’t shift the Bank’s plan for cutting rates. I still expect a cut in November, although a big surprise on inflation could make us rethink that view.
On Thursday the Bank is not expected to cut rates. Historically it likes to cut only once per quarter and it already cut in August.
Even a change in forward guidance looks unlikely in my opinion. Even though the Central Bank has hinted at more cuts, that hint may simply show rates are edging toward a potentially neutral level.
The Bank of Canada may cut rates by about 25 basis points soon. Canada’s economy is tied closely to President Trump’s tariffs, moreover production dropped in the second quarter. It may mean that demand from the US weakens, which could linger. Jobs numbers slipped again in August, pushing unemployment up to roughly 7.1 %.
Inflation sits near the target, in conclusion the central bank could push rates toward the low end of the so‑called neutral range. Therefore I think another cut could happen in the fourth quarter.