Central Banks Back on Front Lines Amid Trade War Angst: Eco Week Ahead

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Central banks may soon be back saving the world economy beset by an escalating trade war.

Thursday’s meeting of European Central Bank officials is set to flesh out plans for a new round of long-term loans to banks. 

Bloomberg Economics reckons the interest rate on part of the loans could be as low as the -0.4% deposit rate, which would mean the ECB’s bumper balance sheet wouldn’t shrink too rapidly. Much will depend on how policy makers regards the rest of the year, with Philip Lane making his debut as chief economist.

Meantime, Federal Reserve officials are gathering in Chicago to discuss how they set monetary policy. That longer run focus may be overshadowed by nearer term needs, with JPMorgan Chase & Co. among the banks now predicting the Fed will cut rates this year.

Elsewhere, the central banks of India and Australia are predicted to lower their benchmarks to support their economies.

Here’s our weekly rundown of key economic events:

Europe, Middle East and Africa

The ECB’s Governing Council will get a few last-minute pieces of data as it makes a final assessment, including Purchasing Managers Indexes and inflation figures for May. The latter is expected to show price growth slowing again as April’s Easter-fueled boost fades. Another central bank with a tricky task ahead is the Bank of England, which is seeing no end to the Brexit uncertainty. For candidates who want to take on that challenge, the closing date for applications to succeed Mark Carney as governor is Wednesday.

The Middle East heads into the Eid Al-Fitr holiday, with major markets closed for much of the week. Turkish inflation data on Monday should show the pace of price increases slowing slightly to 19.25% from 19.5%, still nearly quadruple the central bank’s target. A day later, South Africa will report an economic contraction in the first quarter, with annualized GDP falling 1.6%, according to estimates on Bloomberg.

For more, read Bloomberg Economics’ full Week Ahead for EMEA

U.S.

As President Donald Trump turns his tariffs threat on Mexico, duties on $200 billion of Chinese imports rose on Saturday to 25% from 10%. That takes the world’s two biggest economies deeper into a trade war that threatens both their economies and shows no signs of ending.

Fed Chairman Jerome Powell and fellow officials meet on Tuesday as part of a year-long review of how they try to manage employment and inflation in the U.S. economy. Friday sees the release of the U.S. jobs report, with Bloomberg Economics predicting a payrolls increase of 205,000. “The breadth of payroll gains will signal whether trade tensions are starting to extract a larger toll on domestic economic activity,” said BE’s Carl Riccadonna. ISM manufacturing, due Monday, is forecast at 53 for May, up from a prior reading of 52.8, which was the weakest since 2016.

For more, read Bloomberg Economics’ full Week Ahead for the U.S.

Asia

The Reserve Bank of Australia and Reserve Bank of India are likely to cut interest rates when their policy makers gather on Tuesday and Thursday respectively, according to Bloomberg Economics.

If all the central bankers want to compare notes they will have a chance to do so when those from the Group of 20 convene this week in Japan along with their countries’ finance ministers. How to buffer their economies when most are already at the limits of orthodox policy stimulus will be among the key themes discussed at the gathering.

For more, read Bloomberg Economics’ full Week Ahead for Asia

Latin America

Concerns are mounting that Brazil is headed for recession after a the economy shrank in the first quarter. Economists will be looking out for signs of additional weakness in industrial production numbers for April and inflation data for May -- due on Tuesday and Friday, respectively.

Mexico inflation for May will also be in the spotlight on Friday as traders assess how the central bank will handle the uncomfortable mix of a weaker economy and persistent inflation risks. The economy side of that equation will take an additional negative hit from U.S. tariffs. Meanwhile, Argentina may see the first signs that the recession is ending when construction and industrial activity data for April are released on Wednesday.

For more, read Bloomberg Economics’ full Week Ahead for Latin America

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editors responsible for this story: Stephanie Flanders at flanders@bloomberg.net, Fergal O'Brien, Zoe Schneeweiss

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