LONDON May 4 Euro zone policymakers get their
main monthly chance this week to adjust their rhetoric about
further monetary stimulus, although with inflation creeping a
bit higher there, talk is more likely than action.
Markets will also keep an eye on purchasing managers'
surveys, due early in the week from around the world, to see how
the global economy fared at the start of the second quarter.
Fighting between Ukraine's army and pro-Russian groups in
the east has intensified and a further deterioration in the
region has the potential to spook markets, which have been
paying less heed to the trouble in recent weeks.
While several major central banks meet to decide policy in
the week and the chair of the U.S. Federal Reserve will testify
in front of lawmakers, the European Central Bank's meeting and
press conference will be the main focus.
ECB President Mario Draghi and the Governing Council meet
with a tiny bit of pressure taken off by a modest rise in very
low inflation and by business surveys showing a more
broad-based, but still fragile recovery.
"To some extent, the bounceback in inflation has helped take
some of the sting out of the tail at the meeting, with the (ECB)
Governing Council under less pressure to act quickly," said
Philip Shaw, chief economist at Investec.
What has got financial markets excited is the prospect of
quantitative easing from the ECB at some point in the future,
and what another wave of cash might do to asset prices.
But it is clear that any bond-buying programme similar to
what the Bank of England has already done and what the Federal
Reserve is now winding down after half a decade is probably a
way off, if it ever happens at all.
Euro zone inflation rose last month, but only to 0.7
percent, so still well below the ECB's 2 percent target ceiling
and within what the central bank regards as a "danger zone".
The euro is also very strong, keeping inflation low through
capping import prices. A Reuters poll of economists found that
if the euro rose to $1.40 from the $1.385 it's at now, that
would trigger action from the ECB. But few investors and
analysts are convinced that even Japanese-style money printing
would decisively weaken the euro.
For now, euro zone monetary policy is likely to remain
steady based on the view that a more broad-based recovery is
taking hold and that inflation has already fallen as low as it
will go, according to a Reuters poll.
"What Draghi says about the likelihood of further easing
measures is going to be key to market moves next week," Shaw
Janet Yellen, Chair of the U.S Federal Reserve, will give
testimony to the Joint Economic Committee of Congress on
Wednesday, probably including a discussion of positive trends in
the recovery but asserting that accommodative policy is still
needed to encourage sustained job growth.
U.S. growth stalled in the first quarter, weighed down by an
unusually cold and disruptive winter, although upbeat data such
as consumer spending and industrial production suggest the 0.1
percent annual pace was a blip and not a reflection of the
economy's otherwise sound fundamentals.
Job growth increased at its fastest pace in more than two
years in April and the unemployment rate dived to a 5-1/2 year
low of 6.3 percent, suggesting a sharp rebound in economic
activity early in the second quarter.
The Bank of England also meets, but no action is expected,
as a strong economic recovery gathers momentum and inflation
holds below target. But a growing concern is a return to boom
times for Britain's property market.
"The major central banks share the markets' - and our - view
that global growth is on a strengthening trend and that
inflation will trough and pick up," said John Calverley at
In emerging markets, central banks in Korea, Indonesia,
Malaysia, Philippines, Czech Republic, Poland, and Peru are also
all expected to keep their key policy rates unchanged.
Minutes from the Bank of Japan's April 30 meeting may help
explain why it stood pat, probably as it waits for waves created
by a recent sales tax hike to calm.
CALENDAR LIGHT FOR DATA
Chinese data are expected to show both exports and imports
recording improved annual growth rates.
Growth in China, the world's second-largest economy, slumped
to its slowest in 18 months in the first quarter of this year as
government reform efforts and lacklustre demand for exports took
But Beijing will not relent by loosening policy to shore up
its economy or calm a volatile money market, even though it has
entered a "painful" phase of restructuring, Premier Li Keqiang
wrote in remarks published on Thursday.
China's HSBC/Markit PMI will be watched to see whether
factory activity will show an overall contraction for the fourth
straight month, as preliminary readings suggested. An official
PMI last week showed growth.
ISM non-manufacturing numbers will be the data highlight in
a very light week for the United States, expected to build on
March's upbeat survey.
Euro zone and British PMIs for the service industry - which
makes up the bulk of these economies - are expected to show
robust growth. Sister surveys last week showed recovery in
(Editing by Ruth Pitchford)