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🔍 The focus this week: Central bank decisions

The week ahead is going to be big for central banks, with interest rate decisions from the Bank of Japan (BoJ) on Tuesday, the Federal Reserve (the Fed) on Wednesday, and the Bank of England (BoE) on Thursday.

The BoJ has been the only major central bank with interest rates in negative territory for a while now, but there are growing expectations that the Bank will finally raise them this week. Traders are now evenly split about which way the decision might go. But two separate economic reports last week could give the BoJ the final push it needs to deliver its first rate hike since 2007. First, revised economic growth figures showed that Japan avoided a recession at the end of last year. Second, early results from spring wage negotiations at big Japanese companies suggest that workers are on track to secure their biggest pay raises in three decades. That’s key for the BoJ: strong wage growth is seen as key to keeping inflation going, after decades of economy-busting deflation.

In contrast, traders see almost no chance that the Fed will change its interest rates this week, despite hopes for a cut. It’s not hard to understand why: the Fed’s been using higher interest rates to try to bring down the country’s hot inflation, and the past two months have shown that consumer prices are still rising frustratingly fast. And until things cool down a bit more, the Fed has hinted that it may just keep things as they are. After all, the US economy and its job market are still chugging along, and don’t seem to be in dire need of the boost that comes from lower borrowing costs.

Finally, there’s the BoE. Like the Fed, it’s expected to sit on its hands this week. Inflation in the UK, after all, is still double the central bank’s 2% target, so it’s going to want to see that mellow out a bit more before it takes a knife to interest rates. And with data last week showing that Britain’s economy had begun growing again in January after a short, mild recession, the BoE will know that it can also take a slow, calculated approach as it weighs up all the factors and makes a careful decision.

📅 On the calendar

• Monday: China retail sales and industrial production (February), eurozone trade balance (January).
• Tuesday: BoJ interest rate announcement, US housing starts (February). Earnings: Xpeng.
• Wednesday: Fed interest rate announcement, China one-year loan prime rate announcement, UK inflation (February), eurozone consumer confidence (March). Earnings: Micron Technology.
• Thursday: Japan trade balance (February), BoE interest rate announcement, US existing home sales (February), global PMIs (March). Earnings: FedEx, Nike, Accenture.
• Friday: Japan inflation (February), UK retail sales (February).

👀 What you might’ve missed last week

Global

• Unsold assets held by private equity (PE) firms hit a record high.

US

• Inflation in the US unexpectedly heated up in February.

Europe

• Wages in the UK grew by less than expected.
• Britain’s economy expanded in January, after two quarters of shrinking.

🤔 Why it matters

You can think of PE firms like house-flippers, but for businesses. They pool and borrow money, buy a company, spruce it up, and then (ideally) sell it for a profit. But that last part has been tougher lately, because of higher interest rates – which make it pricier for companies to borrow money and acquire others – and a lack of appetite in the market for stock debuts. As a result, PE groups worldwide are currently sitting on a record 28,000 unsold companies – worth a combined $3.2 trillion, according to consultancy firm Bain.

US inflation proved a bit stickier than expected, with the pace of price gains unexpectedly accelerating in February. Consumer prices rose by 3.2% last month from a year ago – a tick higher than the pace seen in January and more than economists had forecast. The core inflation measure, which strips out volatile food and energy items to give a better idea of underlying price pressures, fell (but by a disappointingly small amount). And with inflation still considerably hotter than the Fed’s 2% ideal, the central bank probably isn’t going to rush to slash the high interest rates it’s been using to calm it.

Pay raises in the UK were slimmer than expected in the three-month period that ended in January, with annual growth in regular earnings (not including bonuses) falling for a fifth straight time to 6.1%. That decline might not seem like great news for the average working Brit, but it does suggest that inflationary pressures are starting to ease in the UK – and that could nudge the BoE in the direction of interest rate cuts. What’s more, the unemployment rate unexpectedly ticked up slightly to 3.9% – a further sign that the job market is in cooldown mode.

For what it’s worth, the BoE has said it’s in no rush to lower borrowing costs, especially with the UK economy rebounding a bit and not seeming to be in desperate need of a boost. Case in point: data last week showed Britain’s economy expanded by 0.2% in January from the month before. The figures leave the UK on track to grow over the first quarter as a whole, which would mark an official end to the mild recession that hit the economy at the end of last year.

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