| LONDON, July 6
LONDON, July 6 With U.S. stocks hitting record
highs on the back of strong jobs growth, the European Central
Bank holding out the prospect of printing money and British
house prices soaring there is a lot to ponder in the week to
The Dow Jones index breached 17,000 for the first time last
week, days after the Bank for International Settlements - the
global forum for central banks - said that markets were in a
"euphoric" state and that keeping interest rates too low for too
long could sow the seeds of another crisis.
In fact, the world's major central banks are operating at
different speeds and, in some cases, are on opposing paths.
The Bank of England is highly unlikely to lift interest
rates from a record low 0.5 percent after its monthly policy
meeting on Thursday, but it is looking increasingly certain to
be the first major central bank to tighten policy.
The U.S. Federal Reserve is winding up its money-printing
programme but seems comfortable leaving rates low until well
into next year. The European Central bank cut rates last month
and may yet have to resort to quantitative easing to ward off
The British economy is growing fast and its housing market
is threatening to burst out of control - prices in London have
shot up nearly 26 percent from a year ago.
A Reuters poll of more than 60 economists produced a
consensus that UK rates will rise in the first quarter of next
year. But it attached a growing, 40 percent chance to a hike
Only last year, the Bank was predicting no move until 2016.
Bank of England chief economist Andy Haldane said last week
that raising rates was the last line of defence against asset
price bubbles, but it would be surprising if property prices
were not very high on the Bank's agenda.
"With none of the BoE ostensibly being in an immediate hurry
to raise rates, the August Inflation Report next month may
provide a better vehicle through which to assess the need for
rate rises," said Nick Bate, economist at Bank of America
FED AND ECB CHATTER
Data last week showed U.S. employment growth jumped in June,
evidence the economy is rebounding after a weather-related slump
at the start of the year.
The data slate is thin in the week to come but a number of
Fed officials - covering the hawk-to-dove spectrum - are
speaking and investors will be tuned in to see if any think a
case is building for an earlier rate rise.
On the back of the U.S. jobs report, J.P. Morgan brought
forward its forecast for the first Fed rate rise to the third
quarter of 2015, from Q4, and said a move in the second quarter
was quite plausible.
Minutes of the Fed's last policy meeting, at which it
expressed confidence the U.S. recovery was on track and hinted
at a slightly more aggressive pace of interest rate increases
starting next year, will be released on Wednesday.
The European Central Bank faces a very different threat -
Hours after ECB President Mario Draghi held out the prospect
of printing euros to rev up the economy, Bundesbank chief Jens
Weidmann broke cover to say the ECB should not leave policy
loose for too long.
Draghi has taken the ECB a long way with measures some of
its members have found hard to swallow. Quantitative easing
could prove to be his toughest test yet.
Draghi speaks in London on Wednesday - the venue for his
game-changing 2012 declaration that he would do whatever it
takes to preserve the euro. A number of his colleagues are also
out and about in the week to come.
"Disinflationary pressures will not disappear overnight and
nor will the threat of deflation. Accordingly, we still think
that the ECB will need to take further action, ultimately
implementing a large-scale quantitative easing programme," said
Jessica Hinds at Capital Economics.
In Japan, the focus is on Thursday's machinery orders, which
act as a leading indicator of capital spending and are expected
to have resumed growing in May.
"Earnings are improving, so companies which have put off
investment are now starting to invest," said Norio Miyagawa,
senior economist at Mizuho Securities Research & Consulting Co.
Bank of Japan Governor Haruhiko Kuroda speaks on Monday when
the central bank holds its quarterly meeting of regional branch
managers. He is likely to reiterate the BOJ's upbeat take on the
economy, which should underscore a growing market view that no
further monetary easing is likely in the near future.
Top Chinese and U.S. officials will hold annual talks in
Beijing on July 9-10, known as the Strategic and Economic
Dialogue, with Washington again calling on Beijing to do more to
allow the market to set the value of its yuan currency.
(Editing by Hugh Lawson)