Fed, ready, steady, cut By Reuters

LONDON (Reuters) – Don’t go anywhere: An eventful week ahead, with central bank meetings from the United States to Brazil and Europe to Japan.

The Federal Reserve is expected to cut interest rates for the first time in four years, Brazil could hike for the first time since 2022 and Japan will be wary of volatile markets as it considers when to raise rates again.

But it’s not just central banks, with UniCredit’s move on Commerzbank (ETR: ) reviving M&A talks among European banks.

Here’s the first time in global markets from Lewis Krauskopf in New York, Rae Wee in Singapore, Marcela Ayres in Brasilia and Naomi Rovnick, Karin Strohecker and Tommy Wilkes in London.

1/ FINALLY TIME

The Fed is set to wrap up a two-day meeting on Wednesday with the first rate cut of the cycle. The key question now is how much and how quickly the relaxation comes.

Recent debate has focused on whether the Fed would opt for a 25 basis point (bps) or 50 basis point rate cut in September. Stocks tipped for a move lower after data showed consumer prices rose slightly in August but core inflation was slightly tighter.

Fed Chairman Jerome Powell’s press conference will be scrutinized for clues about the potential pace of rate cuts. August employment data was weaker than expected for the second straight month, raising some concern that the Fed may be too late in easing.

Traders are still pricing in more than 100 bps of Fed tapering by the end of the year, creating a potential disconnect between markets and Fed forecasts.

2/ UP, NOT DOWN

Also Wednesday, Brazil’s central bank is expected to move away from the Fed, kicking off a tightening cycle, with inflation above the 4.25 percent target and stronger-than-expected growth in Latin America’s biggest economy.

Since keeping rates at 10.50% in July, the bank has hinted it may raise borrowing costs to meet its 3% inflation target. The hawkish stance, bolstered by Governor Gabriel Galipolo, has fueled bets on a future 25bps hike that could support the reality…

But Brazil is an outlier among emerging economies.

In South Africa, where inflation is nearing target, policymakers are expected to cut rates for the first time in four years on Thursday. Turkey is expected to keep rates at 50% on the same day, but could cut in November.

Indonesia’s central bank, which met on Wednesday, signaled a possible interest rate cut in the fourth quarter.

3/ ANOTHER ODD OUT The only way for Japanese fares is to go up. At least, that’s what the Bank of Japan’s policymakers are suggesting, although this month it would be a huge surprise. The BOJ is not expected to change rates at its policy meeting, which ends on Friday, with an emphasis on the tightening path that follows two hikes already this year. Going against the tide of global easing, BOJ policymakers expressed their determination to raise rates further as long as markets behave and economic conditions remain favorable. That helped the yen, which rose more than 10 percent from a 38-year low in July, although investors remain nervous about any further unwinding of yen-backed shipping deals that could trigger renewed volatility.

4/ UNPREDICTABLE

The Bank of England and Norges Bank are expected to keep rates unchanged when they meet on Thursday. The BoE is expected to ease twice more by the end of the year, and Norway could start easing by then.

It is hard for anyone, including the world’s top central bankers, to put much faith in such forecasts. Any surprise from the Fed could change the outlook for global monetary policy.

An unexpectedly dovish Fed could weaken the dollar, alter inflation forecasts for nations such as Britain that import goods priced in dollars and prompt Norges Bank to prop up the oil-linked krona.

Fed comments casting doubt on continued easing here could boost the dollar and tighten global financial conditions.

Investors rely on market forecasts for central bank policy. Best to ignore them for now.

5/ Is he back, or is he?

UniCredit’s swoop on Commerzbank has sparked speculation that the long-awaited European bank M&A is back.

The Italian bank revealed a 9% stake in the German lender – half of which was bought directly from the German state. UniCredit CEO Andrea Orcel wants to buy more or even take over Commerzbank if he wants a tie-up.

Investors are now watching whether Orcel can overcome the many hurdles that have stymied previous deals between European banks, including political opposition, and whether more banks start looking for other deals.

The possibilities are numerous. Meanwhile, investors are buying bank stocks. Commerzbank shares rose almost 20% in two days, the European bank index gained almost 2%.

(Graphics by Prinz Magtulis, Kripa Jayaram, Sumanta Sen, Pasit Kongkunakornkul and Vineet Sachdev; Compiling by Dhara Ranasinghe; Editing by Tomasz Janowski)