Central Banks Tighten Grip on Global Markets as Rate Hikes Loom

Global financial markets are bracing for a volatile week as major central banks, including the Federal Reserve and the Bank of Japan, deliver monetary policy decisions in quick succession. The August Consumer Price Index (CPI) came in stronger than expected, pushing the probability of a 0.25-percentage-point rate increase to nearly 90%. This has investors focused on further tightening by the Fed, rather than just the upcoming rate decision.

The BOJ's monetary policy meeting on September 17-18 will also be closely watched, with markets increasingly pricing in the possibility of a rate hike to 1.25% from 1.00%. If this happens, concerns over an unwind of the yen carry trade could deepen and weigh on risk assets globally.

The Kospi's rebound above 7,000 will also be put to the test, with brokerages saying oil prices and long-term U.S. yields need to ease for the index to extend its recovery. Brent crude and West Texas Intermediate have recently climbed to around $100 a barrel, which could fuel concern over both U.S. inflation and further monetary tightening.