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As every month, the main central banks meet to set monetary policy. The ECB launched the hostilities and, to say the least, delivered a speech in line with expectations. The unpleasant surprise in the eurozone came from the contraction in activity. The composite PMI index fell for the fifth consecutive month to 46.5 in October. This was the "sharpest contraction since November 2020", to paraphrase S&P Global's press release. This indicator is often the precursor of a recession. Once again, we've been warned.
This week, we'll be focusing on Wednesday's Fed meeting, which is likely to adopt more or less the same stance as that of the ECB. According to CME's FedWatch tool, 99.5% of market participants are expecting a status quo. It could hardly be more consensual.
The suspense is at its height
But first, the surprise could come from the Bank of Japan, which meets tomorrow, October 31. Due to inflationary pressures and a yen that continues to weaken against other G7 currencies, the land of the rising sun could adjust its monetary policy. In any case, interest rates have already risen sharply, as can be seen from the graph below showing the Japanese 10-year yield. Note that the end of low rates was triggered when the 0.16 level was breached, as we mentioned in this article, in December 2022. The absence of any bearish divergence also leaves the door open to a further rise in monthly data.
Source: Bloomberg
