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IN TODAYโS EDITION
1๏ธโฃ A big week for central banks |
2๏ธโฃ Iran launches a satellite |
3๏ธโฃ Bird of the day |
Hi Intriguer. One of my favourite memes is the one of ex-footballer Anthony โSpiceโ Adams dressed in a yellow jacket, peeping out from behind a tree, rubbing his hands and licking his lips. The meme is captioned: โMillennials and Gen Z waiting for the housing market to crash so they can buy their first homeโ.
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The meme came out a while ago, but it still slaps. This is particularly the case as the two demographics continue to grapple with inflation and the rising cost of living in many economies.
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So today’s briefing is timely as we look at this week’s flood of scheduled central bank announcements, starting with the big one: expected rate cuts in the US.
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PS – ยฟHablas espaรฑol? ยกCheck out our weekly edition in Spanish!
THE HEADLINES
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Israel makes securing north a war goal.
Israeli Prime Minister Benjamin Netanyahu has made the return of around 60,000 Israeli citizens to northern Israel an official goal of the ongoing war. They were first evacuated amid near-daily attacks by Iran-backed Hezbollah in neighbouring Lebanon. The pledge to return them, announced by Bibiโs office, comes after his defence minister told a US official the โonly wayโ to stabilise northern Israel was through military action against Hezbollah. Itโs raised concerns about the war spiralling into a regional conflict.
Ursula von der Leyen presents new EU Commission.
The re-elected EU Commission President has just presented her new team, a day after the shock resignation of Franceโs EU Commissioner. Her proposed line-up includes former Estonian PM Kaja Kallas as the EUโs top diplomat, Austriaโs Magnus Brunner in the internal affairs and migration portfolio, and Franceโs Stรฉphane Sรฉjournรฉ handling industrial strategy. Each nominee will now need to be approved by the EU parliament.
Microsoft announces stock buyback program.
The tech giant has unveiled a $60B stock buyback scheme, while also declaring a 10% increase in quarterly dividends. Microsoftโs shares have gained 15% this year as it continues to lean heavily into AI.
Meta bans Russian state media from its platforms.
The US company (which runs Facebook and Instagram) says Russian outlets were involved in โforeign interference activityโ. The ban comes after the US accused Russian state media outlet RT of funnelling $10M to fund covert influence campaigns on popular social media platforms.
Host Azerbaijan sets out COP29 goals.
The priorities for this yearโs climate conference skip over plans for the transition away from fossil fuels, instead focussing on a six-fold increase in battery storage capacity, expansions in electricity networks, and cuts in methane emissions from organic waste. Azerbaijan is a major exporter of oil and gas. The summit kicks off in November, but negotiations on helping developing nations with climate adaptation are still deadlocked.
TOP STORY
Why you should watch central banks this week
Federal Reserve Chair Jerome Powell
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This week is kinda like the Super Bowl for finance nerds, as several central banks issue decisions on what to do with interest rates.
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So here are some quick primers on what to expect.
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The US Fed is up first with its highly-anticipated rate cut due tomorrow (Wednesday). Itโs been widely telegraphed, but its size and any accompanying banter from Fed chair Jerome Powell and his board will still bring buzz:
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Background: Borrowing costs are currently at a 23-year high (5.25-5.5%), and any cuts will be the first in four years after they dropped near zero when Covid hit.
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Powell has said the Fedโs moves are now based on โthe data, the outlook and the balance of risksโ, so the recent weaker jobs reports and uptick in unemployment are all making a rate cut inevitable at this point.
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Market reaction:ย Markets suggest thereโs a 63% chance of a big half-point cut and a 37% chance of a standard quarter-point cut. Thatโs sent the Dow Jones to a record high, as traders expect cheaper borrowing to make it easier for folks to get out there and spend and invest. But theyโll also pour over Powellโs every word for any hint heโs worried about the economy, particularly if he opts for the bigger half-point cut.
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Then Brazilโs central bank wraps up its two-day meeting the same day:ย
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Background: Brazil paused its cuts earlier this year, and itโs now set to hike rates for the first time in 3.5 years, kinda bucking the trend playing out elsewhere.
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Thatโs because Brazil just posted surprisingly strong growth, so folks are betting on more hikes (from 10.5% now to 11.25% by year end) to curb inflation.
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Market reaction:ย Traders watch not just the numbers here, but also the personalities – President Lula has long been in a public spat with the bankโs hawkish chair, who was appointed by Lulaโs predecessor and has warned that Brazil still has an inflation problem.
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Then on Thursday, itโs Norway, Turkey and the UKโs turn, with markets not expecting any changes:
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In Oslo, rates are already at a 16-year high (4.5%), and the bankโs mid-August meeting suggested itโs happy to keep things that way while inflation persists
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In London, rates seem likely to hold at 5% after last monthโs cut, given services and wage inflation are still up, and
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In Ankara, rates should stay at 50% (!) given inflation is still over 50% (!).
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Market reaction: Expect a tizz if there is a change, as markets donโt like surprises. Unexpected cuts can spook folks, by signalling that central banks are worried.
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Meanwhile, South Africaโs central bank is meeting the same day (Thursday):
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Background: Like the US, itโs set for a pivot, cutting rates for the first time since Covid – ie, the bank is likely switching from hose-down mode to support mode.
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Market reaction: Itโs no coincidence South Africa (like the others above) has timed its meeting for right after the US – emerging markets in particular worry that if their rates get out of sync, capital can flee in search of higher US returns.
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And to round things out on Friday,ย thereโs the Bank of Japan:ย
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Tokyo is expected to maintain rates at 0.25%, but folks will hang on Governor Uedaโs every word given the weight of Japanโs economy, its legacy of ultra-low rates, and its move earlier this year to raise rates for the first time in 17 years.
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So there may be fewer beers, buffalo wings and bars involved, but this weekโs central bank Super Bowl is still well worth watching.
INTRIGUEโS TAKE
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Sure, everyoneโs expecting the Fed to cut, but that doesnโt make the coming months any clearer:
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Cut too fast, and you risk asset bubbles, or
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Cut too slow, and you risk a recession.
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So you gotta cut just right. How? For years, many central bankers were guided by the Brainard principle (from the Yale economist in 1967): if youโre uncertain, go slow.
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But in the decades since then, weโve learned that sometimes going slow just makes the problem worse, and renders your eventual course correction less effective.
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Thatโs partly why markets are expecting Powell to go medium-hard (0.50%) and then choose his words very carefully.
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Also worth noting:
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Donald Trump has said the Fed shouldnโt cut rates before the November election, while some fellow Republicans are disagreeing and calling for the Fed to cut given signs of a slowdown. Meanwhile, some Democratic senators just wrote a letter calling on the Fed to cut even faster (0.75%).
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The European Central Bank cut rates again last week.
MEANWHILE, ELSEWHEREโฆ
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๐ฐ๐ทย South Korea: The US and South Korea are reportedly in talks to renew their cost-sharing agreement for US troops in South Korea as officials on both sides of the Pacific prepare for a possible Trump 2.0 presidency. During his first administration, Trump argued Seoul should pay up to 400% more for the US to maintain its ~28,500 troops on the Peninsula.ย
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๐ท๐บย Russia: President Putin has again ordered the Russian army to expand its regular size, this time by 180,000 troops to 1.5 million soldiers. Itโs the third time heโs given such an order since his 2022 invasion of Ukraine, and comes amid consistently high casualties.
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๐ฎ๐ณย India: The subcontinent just recorded its biggest IPO this year after Indiaโs top non-bank lender floated its housing finance arm. The listing comes after Indiaโs central bank exhorted a group of non-bank lenders to go public to enhance financial transparency.
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๐ฆ๐ทย Argentina: President Javier Milei has personally presented his 2025 budget to congress, promising to veto any measures that would threaten his tight fiscal austerity plan. He needs congress to clear his budget, but his allies only control a fraction of the seats.
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๐ฎ๐ทย Iran: Tehran says it successfully launched a domestic-made satellite over the weekend, its second ever. While thereโs been no independent confirmation, the West worries Iranโs space program is helping its ballistic missile program.
EXTRA INTRIGUE
Hereโs what people around the world have googled latelyย
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๐จ๐ฆ Canadians searched โShลgunโ after the historical TV drama (set at the end of Japanโs Sengoku period) won a record 18 Emmys.
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Fans in ๐ฟ๐ฒย Zambia googled โTito Jacksonโ after the Jackson Five singer and brother of pop legend Michael Jackson died aged 70.ย
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And folks in ๐จ๐บย Cuba looked up โEvo Moralesโ after Boliviaโs former president faced accusations of plotting a coup in his Andean home nation.
BIRD OF THE DAY
The hoiho. Credits: Dean O Schneider, Rod Morris and Janice Jones / New Zealand Geographic.
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In a year filled with elections, weโre committed to bringing you hard-hitting updates from even the tiniest ballots.ย
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Soโฆ be advised that a small, smelly, endangered penguin with yellow eyes has won New Zealandโs prestigious โBird of the Yearโ contest. Ecologists have rejoiced at the win, hoping the spotlight might translate to better conservation efforts for the hoiho.ย
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Like any good election, this bird competition has faced a few controversies over the years. In 2018, neighbouring Australians attempted to influence the outcome in favour of the humorously named โshagโ; a year later, votes cast from Russia triggered complaints of interference; and in 2021, the winning bird was not even a bird, but a bat.
Extra fun fact: the hoiho is featured on the Kiwi $5 note.ย
DAILY POLL
What do you think is the biggest risk for the Fed right now? |
Yesterdayโs poll: Not wanting to start a war here, but… which country do you think serves the best cup of coffee?
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๐ฉ๐ฉ๐ฉ๐ฉ๐ฉ๐ฉย ๐ฎ๐น Italy (35%)
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๐จ๐จ๐จโฌ๏ธโฌ๏ธโฌ๏ธ ๐ฆ๐บ Australia (19%)
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โฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐น๐ท Turkey (5%)
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๐จโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐ช๐น Ethiopia (6%)
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โฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐ป๐ณ Vietnam (5%)
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๐จโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐จ๐ด Colombia (11%)
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โฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐ฎ๐ฉ Indonesia (2%)
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โฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ ๐ง๐ท Brazil (5%)
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๐จโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธโฌ๏ธ โ๏ธ Other (write in!) (12%)
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[Thanks to those Intriguers who pointed out we accidentally used Indonesiaโs flag twice yesterday and so missed Colombiaโs banner!]
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Your two cents:
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๐ฎ๐นย B.J: โI’m an American citizen who thought he knew what โrealโ coffee was. That all ended while assigned to military temporary duty at Tirrenia, Italy in late summer of 1995. I ordered a cappuccino at the hotel bar — my goodness, it was a religious experience served in 8 fluid ounces for 3K lira ($2)… in a ceramic cup, no less!โ
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โ๏ธย J.M.I: โItโs the USA, at least if you like third-wave microlot coffee. Nowhere else is it quite as fussed over quite so nerdily, in my experience.โ
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๐ช๐นย N.I: โJapan probably makes the best cup of coffee while Ethiopia or Kenya provide the best beans.โ
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โ๏ธ B.S.G: โHaving lived in Zanzibar, Peru, Ecuador, Honduras and Turkey, I can tell you that consistently the best coffee I’ve ever had is in Porto (Portugal).
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โ๏ธ J: โTea, please.โ
Honourable mentions: Jamaica, Greece, Guatemala, New Zealand, India, South Africa, and Yemen.
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