The Week Ahead: It is rare that a week passes these days without some form of unexpected intrigue on global markets and last week was no exception. In a surprise move, the Bank of Japan implemented negative interets rates for some bank reserves in a move designed to boost the stagnant Japanese economy. This move by the BOJ is likely to have longer lasting implications for global markets and could call into question the US Federal Reserve’s preferred interest rate tightening trajectory.
Only weeks ago up to four quarter percent interest rate hikes were considered possible for the US this year but the ever increasing divergence between the US Fed and other central bank policies now makes this appear unlikely. Now, even a single interest rate rise in the coming calendar is by no means a certainty with futures traders signaling the possibility of a single rise at 60% – down from above 90% in December. The Fed decided to keep interest rates on hold at last week’s FOMC meeting.
US economic growth slowed in the fourth quarter of 2015 according to data released late last week. Slowing global markets, a strengthening USD that hit exports and the free-falling oil price all impacted growth rate. GDP growth in the US came in at 2.4% for the second consecutive year after a slow start to the year and the turmoil of the final quarter. With the importance of consumer spending to the ongoing strength of the US economy taking on added significance amidst global woes, this week’s personal spending and personal income figures along with the non-farm payrolls and unemployment data will be eagerly anticipated.
In Australia this week the RBA returns from its summer hiatus with its first board meeting of the year. Despite the somewhat surprise actions of some central banks the RBA is firmly expected to keep interest rates on hold and anything other than this would be a real shock. The AUD strengthened in late trade last week before easing off into the weekend to open up just shy of 0.7100 USD. The RBA Monetary Policy Statement on Friday should make for interesting reading following the dramatic events in recent times. Manufacturing data and commodity price figures kick off the week of Australian data with trade balance and building approvals on Wednesday. Business confidence figures are released on Thursday with key retail sales data due on Friday following the RBA statement.
The RBNZ met last week and kept interest rates on hold. The accompanying statement did, however, suggest that rate cuts may be on the agenda later this year as a means of stimulating the economy and bringing inflation up into the target region. Visitor arrivals data for the key summer season are released on Monday with commodity price data on Tuesday. Midweek sees the important dairy auction results as well as employment data.
The Bank of England is due to meet this week and is expected to outline a reduction in its growth and inflation forecasts for the year ahead. This suggests that an even longer period of record low interest rates remains likely with the bank unlikely to seek to raise rates this year amidst ongoing global turmoil. The British economy had its slowest growth in almost three years during the three month period to January.
Across the channel in Europe manufacturing data starts the week before unemployment data on Tuesday. Retail sales data is due on Wednesday before the ECB’s economic bulletin is released on Thursday. Positive data in Europe would dovetail niocely with the highest CPI increase in 14 months that was announced late last week. Despite this modest increase expectations are that ECB President Draghi will likely need to further increase stimulus at the central bank’s March meeting.
Chinese manufacturing data will be eagerly awaited to start the week on Monday. Any positive data should provide a much needed boost to global sentiment. Japanese manufacturing figures are also due on Monday in what should be a relatively unevenetful week for Japan following last week’s surprise BOJ action.