The Fed, which wraps up a policy meeting on Wednesday, is expected
to keep steadily reducing its massive bond-buying stimulus by $10
billion per month.
Financial markets will be listening out for any hints on when the
U.S. central bank might begin raising interest rates.
"The Federal Reserve is preparing to move to the second step of the
monetary policy exit. With the tapering of asset purchases virtually
on auto pilot – QE3 is projected to end in late summer or early
autumn – the focus is gradually shifting towards actual rate hikes,"
Unicredit said in an investor note.
It said the notion that U.S. monetary policy has reached a turning
point could be strengthened if the Fed policymakers' median rate
forecast for the end of 2016 stays at 2.25 percent, where it stood
in March, up from 1.75 percent in December.
The matrix of dots for when each rate-setter expects policy to begin
tightening - and how quickly - will be keenly scrutinised, as will
any comments about rate hikes or slack in the economy from Fed Chair
Janet Yellen, who speaks after the results of the meeting are
While the world's largest economy got off to a weaker than expected
start this year, many analysts believe the underlying trend for
growth remains solid.
Global stocks are likely to stay on the back foot due to concerns
over a growing radical Islamist insurgency in Iraq. U.S. President
Barack Obama said he didn't rule out air strikes to help Iraq
counter the insurgency, but later said he needed several days to
determine how the United States would react.
The escalating violence in Iraq drove oil prices to a nine-month
high on Friday.
The monetary policy outlook will also be in focus in Britain after
Bank of England Governor Mark Carney stunned the markets by saying
rates could rise sooner than financial markets expect.
His comments, which put the British central bank out ahead of the
world's other major policy guardians on the monetary tightening
front, pushed sterling to near five-year highs against the dollar on
The Bank publishes the minutes of its June policy meeting on
Wednesday, which will be closely watched for signs of any further
division among its members on rates, and several of its policymakers
will be speaking during the week.
The Bank's new Financial Policy Committee, which has the power to
rein in an overheating housing market, meets on Tuesday, although
the meeting minutes will not be published for a couple of weeks.
Meanwhile, the ECB's fight against deflation via interest rate cuts
and measures aimed at stimulating lending to crisis-hit companies,
means few expect further action from it for now.
[to top of second column]
"The ECB has bought itself some quiet time, maybe for the remainder
of this year. It doesn't want to be pushed in to any additional
movements before then," economist at Deutsche Bank Gilles Moec said.
There will be few key economic indicators from the euro zone, with
the German Zew index for June in focus after better-than-expected
industrial output data and rising confidence in the bloc suggesting
growth is accelerating in the second quarter.
Bond markets will look to absorb debt supply from Spain, Germany and
France after a heavy issuance last week including 9 billion euros of
a new 10-year bond from Spain and paper from France, Italy, Germany
Yield-hungry investors will be watching for news of a possible debt
sale by Cyprus just a year after it bailed in bank depositors and
imposed capital controls. That would make it the last euro zone
member that took financial aid to make a market comeback.
The Bank of Japan publishes the minutes of its monthly policy
meeting on Friday but is not expected to have moved from an
optimistic viewpoint that the country is in the midst of a virtuous
cycle of employment and output growth, analysts say.
"There is some support to this theory. The unemployment rate remains
very low and job offers to applicants ratios are moving steadily
higher. Add to this the slight improvement in cash wages, and the
firmer backdrop to the Japanese economy than that prevailing back in
1997," said ING in an investors note.
China will issue foreign direct investment data on Tuesday and house
price figures on Wednesday. A slowdown in property inflation is
likely to stoke fears about a deepening downturn in the sector.
(This story corrects Obama's name in paragraph eight)
(Additional reporting by Gui Qing Koh and Ann Saphir; Editing by
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