The guessing game over the timing of eurozone money printing will intensify as the European Central Bank unveils a closely watched gauge of policy in the coming week, the highlight of a calendar dominated by Europe’s malaise.
On the other side of the Atlantic, investors will continue placing their bets on a different but equally crucial event: when the US Federal Reserve might raise interest rates, Reuters reported.
US data and several Fed central bankers will give a sense of the speed of the recovery and when a rate rise might be merited, while oil prices and Chinese data will provide plenty more for markets to digest.
“The key story is going to be in the eurozone,” said James Knightley, ING’s senior economist, referring to the results of the ECB’s targeted long-term refinancing operations (TLTROs) on Thursday.
The cheap loans for banks are one of the ECB’s main ways to flush money into the stagnating eurozone economy. “If the take-up is poor, that could increase market talk that the ECB is going to step in and use other tools,” Knightley said.
Similar Program
That means a sovereign bond-buying program like those used in the United States, Britain and Japan, but which Germany fears would encourage reckless state borrowing and fuel inflation.
Such a program may come early next year. “The take-up of TLTROs could swing the ECB’s Governing Council between January and March, depending on how the number looks,” said Citigroup economist Guillaume Menuet.
The first TLTRO was taken up only to the tune of 83 billion euros. Hopes are higher for this time but forecasts hover around the 150 billion euro mark, leaving the ECB short of the 400 billion euros it was prepared to offer banks in total.
On Monday in Brussels, ECB President Mario Draghi will tell eurozone finance ministers no amount of stimulus can replace reforms to tax, labor and pension systems to bring down near-record unemployment.
New forecasts by the ECB predict the eurozone, which generates a fifth of global output, will grow just 1 percent in 2015 rather than the 1.6 percent predicted three months ago.
German October industrial production data and French business sentiment for November, due on Monday, are likely to show the weakness of the rebound as the bloc struggles to overcome its debt and banking crises.
Rate Hike
With a weak global economy, some investors fear that strong short-term growth may give way to a slower economic expansion from mid-year, leaving inflation below the Fed’s target levels and influencing the timing of a rate hike.
Investors are waiting for the Dec. 17 Federal Open Market Committee (FOMC) meeting but will be treated to a host of data before then including November retail sales and October wholesale inventories. Fed policymaker Dennis Lockhart speaks on Monday, while producer prices for November and consumer sentiment will be published during the week.
Many expect the Fed to soon eliminate its guidance that it will keep rates near zero for a “considerable time.”
“The removal of ‘considerable time’ at the December FOMC meeting is very likely,” BNP Paribas said in a report.
Beyond Europe and the United States, Chinese data will give the latest snapshot of the slowing pace of the world’s second largest economy following November’s rate cut.
On Monday, China’s trade balance for November will show how exports have fared after slowing foreign sales in October and could prompt policymakers to roll out more stimulus measures. Beijing will also release consumer and factory inflation data on Wednesday.
