* ECB meeting, U.S. jobs report to dominate week
* Euro off 6-week low, shares firm on solid factory data
* ECB seen flagging policy easing
* Gold, oil seen vulnerable to Fed tapering expectations
By Richard Hubbard
LONDON, Nov 4 Robust euro zone factory data
lifted the single currency off a six-week low on Monday and
boosted shares, but did little to shift expectations that the
European Central Bank was about to signal a policy easing.
A drop in the currency bloc's inflation to well below the
ECB's target level and firm money market rates have convinced
many investors a shift in ECB policy is on the way and looks set
to support prices until the central bank meets on Thursday.
"The bias remains for it to ease, as markets drive the ECB to
address disinflationary pressures building in the euro zone,"
said Jeremy Stretch, head of currency strategy at CIBC World
The euro touched a fresh six-week low early on Monday as the
rate cut talk spread to Asia, though by midday it had recovered
to be up 0.2 percent at $1.3510, helped by the release of
positive manufacturing Purchasing Managers' Index (PMI) surveys.
The euro zone PMI showed factory production in the 17-nation
bloc had accelerated as expected in October, though it remained
weak compared to historical levels.
"On past performance it is still only consistent with pretty
weak industrial production growth. It's rising - but it's hardly
at booming levels," said Ben May at Capital Economics.
Europe's broad FTSEurofirst 300 index nudged up
slightly after the surveys for a gain 0.4 percent on the day as
it closes in on last-week's five-year high.
The better economic outlook was also expected to lead to a
firmer start when Wall St opened, though investors were expected
to be in a cautious mood ahead of Friday's key jobs data.
A weekend report pointing to expansion in China's giant
service sector had earlier done little to invigorate Asian
markets. MSCI's broadest index of Asia-Pacific shares outside
Japan eased 0.2 percent while Tokyo markets were
closed for a holiday.
The MSCI world equity index, which tracks
shares in 45 nations, was 0.1 percent higher.
MORE CASH OR LOWER RATES?
In fixed income markets, bets on an easing in euro zone
rates lifted both core and lower-rated euro zone bonds, though
there remained a debate among analysts over which policy tool
the ECB might choose to use.
In addition to a cut in its main refinancing rate, now at
0.5 percent, the ECB could reduce the deposit rate to below
zero, which would have a bigger effect on money markets. It may
even promise of another long-term refinancing operation to
ensure banks have plentiful liquidity. [ID:nL5N0IN04N}
"I'd be surprised if they don't do something before the
year-end," said Simon Smith, chief economist at FXPro. "On
balance, I'd be thinking they were more likely to do some thing
on the liquidity side where it would be more effective."
The Bank of England also holds it policy meeting on Thursday
and is expected to stay on hold following a run of improving UK
Meanwhile markets remain highly sensitive to any clues on
when the Federal Reserve might scale back its bond-buying after
upbeat U.S. factory data last week stirred talk of a tapering in
December, rather than in March as many had been anticipating.
Dallas President Richard Fisher, took the opportunity of a
speech in Sydney on Monday to lambast Washington for making the
Fed's task much harder.
"The inability of our government to get its act together has
countered the pro-cyclical policy of the Federal Reserve,"
Fisher told business conference.
Fed Governor Jerome Powell and the heads of the St. Louis
and Boston Feds are due to speak later in the day.
However, the main event this week will be Friday's U.S.
payrolls report which is expected to show a modest rise of just
125,000 in October, amid uncertainty about the economic impact
of last month's government shutdown in Washington.
A soft report, and particularly any rise in the jobless
rate, would argue against an early Fed tapering.
Also of note will be the U.S. gross domestic product (GDP)
on Thursday, expected to show annual growth of 1.9 percent in
the third quarter, down from 2.5 percent the previous quarter.
Commodity prices were held in check by the firm dollar.
Spot gold was trading at $1,316 an ounce, having
fallen from a peak of $1,361.60 last week. Copper shed 0.6
percent to $7,200 a tonne.
Oil prices steadied following last week's losses as a firmer
dollar and ample supplies outweighed concerns about a drop in
Libyan crude exports.
Brent crude for December delivery was up 56 cents at $106.48
a barrel. U.S. oil for December delivery was 29
cents firmer at $94.90.