After more than a month of East-West tensions centered on Russia's
annexation of Crimea, U.S. President Barack Obama and Russia's
Vladimir Putin finally spoke to each other on Friday, suggesting a
possible diplomatic path out of crisis.
With geopolitical issues calmer, even if not resolved, the financial
markets are more likely to be guided more by global economic data
and central bank deliberations.
The ECB's Governing Council meets on Thursday and, although the vast
majority of economists expect it to hold interest rates <ECB/INT>,
it is wrestling with a response to inflation persistently below its
target of below but close to 2 percent.
The first estimate of euro zone inflation for March will be
published on Monday.
Initial figures from Germany showed EU harmonized inflation easing
by slightly more than forecast to 0.9 percent year-on-year, while in
Spain consumer prices fell at their steepest annual pace in almost
That could push the level for the euro zone as a whole even below
the 0.6 percent consensus from February's 0.7 percent. The figure is
set to be the lowest since November 2009.
It will also be a sixth straight month of inflation in the ECB's
"danger zone" of below 1 percent, although the bank can point to
energy and food prices as the culprits. A far later Easter this year
should also lead to a rebound in April.
The ECB left interest rates on hold and took no new measures to
bolster the fragile recovery at its last monthly meeting. Its
president, Mario Draghi, suggested then that the bank would either
do nothing or take bold action should the outlook deteriorate.
That could include buying loans and other assets from banks,
something Germany's Bundesbank, a long-time critic of quantitative
easing (QE), accepted last week as a viable option.
For now, most economists believe the ECB will maintain its current
"I don't think there'll be enough for the ECB to deliver something
next week. We do see this happening in June, when there will have
been a cleaner May inflation figure and new ECB staff forecasts,"
said Guillaume Menuet, economist at Citi.
'CLEANER' U.S. JOBS NUMBERS
Federal Reserve policy comes back into focus on Friday with U.S.
March non-farm payroll and unemployment data — the key determinant
of the pace at which the U.S. central bank cuts its bond buying
U.S. job creation slowed sharply in December and January, turning in
its weakest performance in three years, but extreme winter weather
played a key role.
February brought an encouraging 175,000 posts even as freezing
temperatures held sway.
Economists on average believe around 200,000 more Americans joined
the workforce in March, though the number is among the most
difficult of numbers to forecast, with the U.S. economy on average
creating and destroying around 8 million jobs per month.
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"It will be cleaner than anything we've seen since the start of
winter... So if it is bad, it would have a bigger impact," said ING
chief international economist Rob Carnell.
Still, many believe the Fed will not easily change course. It has
cut its monthly bond purchases by $10 billion at each of its last
three meetings, and a similar reduction is expected when officials
next meet on April 29-30.
"There's a high hurdle to changing the pace of the taper. It would
need a reading of below 100,000 to change the course," Aichi Amemiya
of Nomura Securities.
The unemployment rate, a slightly more predictable and less volatile
indicator, is seen dropping to 6.6 percent from 6.7 percent in
JAPAN SALES TAX HIKE
In Japan, the start of April on Tuesday local time will bring a rise
of national sales tax to 8 percent from 5 percent.
Economists will be trying to assess its impact from the March
purchasing manager index, February factory output and housing starts
on Monday, with slowing growth as late demand ahead of the tax hike
Tuesday's much-watched tankan report from the Bank of Japan will
most probably show an improvement in business sentiment for a fifth
straight quarter in the three months to March, although a dip is
seen for the April-June period.
In China, more comprehensive and final purchasing manager indices
for manufacturing and services are expected to confirm the view that
the world's second largest economy is facing a slowdown.
A preliminary PMI survey last week by HSBC and Markit Economics
showed that factory sector activity hit an eight-month low.
The official PMI is seen ticking up slightly for the
first time since November.
Chinese Premier Li Keqiang last week said Beijing was ready to
support the cooling economy, with some economists now believing the
country's official growth target of 7.5 percent this year is too
ambitious after a week first quarter.
(Additional reporting by Tetsushi Kajimoto in Tokyo, Jason Lange in
Washington; editing by John Stonestreet)
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