Central banks again dominate the rest of this week, led by the US Federal Reserve, the Bank of Japan, the Banco de Brazil, the Bank of Russia and Reserve Bank of New Zealand.
In Australia, the dominant economic news for markets will be the inflation data on Wednesday for the March quarter.
Of the quartet the Fed’s decision will be the most important for global markets. The decision will be announced early Thursday morning and while economists don’t expect an increase in rates, they do expect a change in wording of the post-meeting statement to give markets a better idea of when one might occur.
Recent comments from Fed Chair Janet Yellen and several other Fed members, stressing caution in raising interest rates, suggests that there is close to zero chance of a hike this week.
There is a definite softness in US and global economies at the moment and the looming Brexit vote in the UK (on Britain leaving the EU) on June 23 will see no move in that month and a question mark over July if the vote is to leave.
And then there’s the latest round of talks on Greece’s new bailout which are due to be completed by mid year – a US rate rise might unsettle markets at the worst possible time for any deal.
The Bank of Japan also holds a lot of interest with its meeting and decision on Thursday – the same day as the outcomes of the RBNZ and the Bank of Brazil.
There is a suspicion the Bank of Japan may do something to offset the pressures the partial negative interest rate regime seem to be having on Japanese banks. At the same time the Japanese economy has slowed sharply and seems to be hit again by weak consumer demand and more deflation.
The Bank of Japan might look to erase policy further to help soften the economic impact of the twin earthquakes earlier this month. The yen had its biggest one day and week fall last week – it dropped 2.1% on Friday alone on talk of negative rates for bank loans. Traders are on alert for a dramatic policy this week from the central bank, as it did on January 29 when it went to a partial negative rate regime.
So it is possible the Bank of Japan could make a big policy change a few hours after the Fed’s decision and statement are released.
In our part of the world, the RBNZ announces its decision around 7 am Thursday, AEST. Economists don’t expect another cut so close to the surprise cut in March, but they stress that one wouldn’t surprise.
The Kiwi economy is slowing and the dairy industry remains under immense pressure.
The Banco de Brazil’s two-day meeting ends on Thursday and a rate decision will be known Friday morning, Sydney time.
With the Government of President Dilma Rousseff in disarray because of looming impeachment moves against her, the economy in deep recession, but inflation remaining high, the central bank could make a small cut to its key interest rate.
And Russia’s central bank release its latest rate decision on Friday night, our time. A small rate cut would not surprise with the economy still gripped by recession.
On the data front US has a busy day tonight, our time, with the release of data on durable goods orders, home prices and consumer confidence.
The first estimate of March quarter GDP growth is out Thursday night, our time, a few hours after the Fed’s decision is released.
The AMP’s chief economist Dr Shane Oliver forecasts a rise of just 0.5% annualised (Thursday). But that will change in the second and possibly the third estimates due over the next two months.
US employment costs for March and the core consumption deflator and expenditure data for March will both be released on Friday night, our time.
US March quarter earnings reports will also continue to flow with 186 S&P 500 companies reporting this week dominated by Apple, Facebook, Amazon, Boeing, ExxonMobil, BP, Comcast, Eli Lilly, Twitter, eBay, Deutsche Bank, 3M, Dupont, Freeport and Dow Chemicals.
The US Presidential primary season continues tonight, our time, with five states conducting polls.
Japanese data for inflation, household spending and industrial production will also be released on Thursday, during the meeting of the Bank of Japan. Weak readings, especially for inflation, could influence the bank’s decision.
In the eurozone, besides the continuing talks on a new bailout for Greece, we will also see the release of eurozone March quarter GDP on Friday night, our time, along with the early inflation data for April and the early unemployment figures.
The first estimate of UK GDP for the March quarter will be issued on Wednesday night, our time.
In Australia, the focus will be on March quarter CPI inflation (tomorrow) which is expected to show an increase of just 0.3% quarter on quarter or 1.8% year on year, according to Dr Oliver.
He says lower petrol prices and ongoing weak pricing power will offset seasonal increase in prices for health and education.
He also says the the underlying measures of inflation looked at by the RBA, are expected to rise by 0.5% quarter on quarter or 1.9% on an annual basis.
“Inflation continuing to run at or below the low end of the RBA’s target zone is one reason why we expect another RBA rate cut this year but it would need to be significantly weaker than expected to drive a May rate cut,” Dr Oliver wrote at the weekend.
Data for export and import prices, producer prices and the RBA’s private credit figures (Friday) will also be released.
RBA Assistant Governor Guy Debelle speaks in Jakarta on Friday.
The flow of quarterly resource company reports continues – watch for Newcrest’s later today for signs of any change of its production guidance for the year. Resmed is due to release its March quarter financial report as well in the US and Australia.
