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Central Banks Still the First Line of Defense Amid Fed Countdown

Michelle Jamrisko
Central Banks Still the First Line of Defense Amid Fed Countdown

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Central banks stole the limelight again this week, while economic growth data aren’t seeing relief and the on-again, off-again relationship between the U.S. and China prepares for its next encounter.

Here’s our weekly wrap of what’s going on in the world economy.

Stimulus Salvo

President Mario Draghi set the stage for his European Central Bank to deliver another round of monetary stimulus in September to combat the euro area’s severe economic slowdown, with the swath of options including interest-rate cuts and renewed quantitative easing.

Meanwhile in Turkey, the new governor delivered the biggest interest-rate cut in at least 17 years, and Australia’s top policy maker said he’s ready to ease policy further if his back-to-back cuts fail to revive economic growth.

As all await a probable easing from the Federal Reserve next week, and major central banks return to net bond purchases this year, there remain reservations about diving in all too dovishly. Cutting from a low base, amid a healthy U.S. economy and strong asset prices, could create more problems.

Elsewhere, Brazil and Mexico could lead a fresh Latin American rate-cut party, and India’s central bank chief argues that there’s more policy accommodation than their rate-cut streak suggests. A Bank of England official tells us that they’re not tethered to forecasts suggesting hikes, and the Bank of Japan is expected to send similarly accommodative signals next week, a Bloomberg survey shows.

Read More:

Missing Their Inflation Goals, Central Banks Study Moving PostsRBNZ to Refresh Unconventional Policy Strategy as Rates Drop Indian Central Banker’s Calls Go Largely Unheeded as He Departs

Trade-War Burn

The post-G-20 stall in U.S.-China trade talks is set to end next week as U.S. Trade Representative Robert Lighthizer leads a visit to Chinese negotiators. Few analysts are counting on the latest thawing to turn around flagging economic forecasts anytime soon, including a fresh IMF downgrade. The raw data also were more discouraging, with a German manufacturing slump, and South Korea and Taiwan exports leading the way in making the Bloomberg Trade Tracker look even more morose.

The global economy does have bright spots, with services trade and other developments that show globalization is hardly dying as some might fear, a series of graphics from Shawn Donnan and Lauren Leatherby illustrates.

Read More:

South Korea’s Economy Starts Growing Again as Outlook DarkensTrade War Spurs Recession Risk in Former Tiger Economy SingaporeXi Ally Zhong Emerges From Shadows as U.S. Trade Talks Restart

Battle Tactics

Whether global trade policy uncertainties can begin to wane depends on how certain tactics play out. Amid a delicate revamp to U.S.-China talks, President Donald Trump is paying tribute to President Xi Jinping in the latter’s other big current challenge: getting a handle on Hong Kong protests that remain a thorn for the mainland. China’s still swinging on some fronts, blaming the U.S. for global instability in a first-in-four-years defense report.

Someone, anyone, in the world will have to give in on a push for weaker currencies if the global economy is to return to stability, our markets colleagues explain. And ex-Fed chief Alan Greenspan renewed his criticism of Trump tariffs on Bloomberg Television.

Read More:

Europe Plans to Use the U.S. Election to Beat Trump’s Trade WarU.S. Warship Sails Through Taiwan Strait Ahead of Trade TalksTrump Agrees to Timely Decisions on Huawei as China Talks Near

Weekend Reading

The #NoMarriage Movement Is Adding to Korea’s Economic WoesWhy Japan Is Risking a Tax Hike in a Slow Economy: QuickTakeNew York Fed Has a Black Swan Hunter With a ‘Flair for Darkness’Gerard Lyons as Carney’s Successor Could Mean a Different BOE

Chart of the Week

Globalization Isn’t Dying, It’s Just Evolving

To contact the reporter on this story: Michelle Jamrisko in Singapore at mjamrisko@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, Zoe Schneeweiss, Andrew Atkinson

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