Market Overview

(Reuters) – More interest rate cuts are set to come in Switzerland and Sweden following a significant Federal Reserve rate change, with pressures emerging from U.S. inflation data and global business activity surveys.

In political news, Japan’s ruling party is selecting its next leader, who will become prime minister, while Sri Lankan voters have elected a new president.

Week-Ahead Primer

1. FRONT-LOADERS
Central banks in Sweden and Switzerland are anticipated to participate in the Great Rate-Cutting Race of 2024. Market forecasts suggest both will lower benchmark rates at their upcoming meetings. There is speculation about front-loading cuts this year, allowing for minimal policy easing in 2025.

The Swiss National Bank (SNB) cut rates first among major banks back in March. However, markets are uncertain about the cut’s size this Thursday, especially with the franc’s value rising against expectations.

Sweden’s Riksbank is expected to implement a 25-basis-point cut on Wednesday, with a potential 50-basis-point cut in November.

2. INFLATION IN FOCUS
The Fed’s preferred inflation measure, to be released on Sept. 27, will show whether inflation is continuing to ease. The personal consumption expenditures (PCE) price index for August is anticipated to have risen 2.5% yearly, with projections forecasting further falls to 2.3% by year-end.

Additional data on consumer confidence and durable goods will also be available this week.

3. RECESSION WATCH
Flash data on business activity is set to provide insights into the global economy. Notably, Eurozone business activity unexpectedly contracted in September, with the services sector stagnating and manufacturing declines accelerating.

For now, markets are optimistic that the Fed’s recent rate cut can prevent a U.S. recession, maintaining a global outlook, while economists estimate a 30% chance of recession, unchanged throughout the year.

However, challenges remain; Germany’s PMI has dropped deeper into contraction, and China’s struggling economy is likely to impact others.

4. PICKING A PREMIER
Japan’s ruling party is selecting a new leader on Sept. 27, which will result in a new prime minister. The competition is tight, with three frontrunners embodying diverse policy perspectives. A snap election is expected in late October, complicating any immediate policy decisions by the central bank.

5. TOO CLOSE TO CALL
Sri Lankan voters have elected leftist leader Anura Kumara Dissanayake, promising changes for the debt-ridden nation. Despite signs of economic recovery, concerns remain about delays in future International Monetary Fund disbursements under the new leadership.

(Graphics by Prinz Magtulis, Sumanta Sen and Vineet Sachdev; Compiled by Karin Strohecker; Edited by Christopher Cushing and Mark Heinrich)