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 Inconclusive data in the United States has given few clues as to
when the Federal Reserve might bring its policy of easy money to an
end, while markets are still waiting for the European Central Bank (ECB)
to come to the euro zone's rescue again with more than just another
interest rate cut.
Financial markets spent early December hanging on U.S. jobs data to
make or break the case for continued U.S. stimulus, but there is
still no clear mandate for what economists call the "tapering" of
the Fed's bond buying.
"It is virtually impossible to forecast the timing of the taper,
except that it is coming," said Rob Carnell, an economist at ING in
London.
Around the world, five years after the worst global financial crisis
since the Great Depression, only Britain stands out among major
developed economies as posting strong economic growth and falling
unemployment, while Japan's reform programme may be faltering.
EU finance ministers gather in Brussels on Monday for two days of
meetings, but their focus is on avoiding future crises by building a
single banking framework for the euro zone, not so much on resolving
the one playing out.
China, the world's second-largest economy, is at least showing signs
of economic resilience. A host of data this week, from trade to
industrial production, should confirm that, auguring well for the
country's boldest economic and social reforms in nearly three
decades that were unveiled last month.
When it comes to reading Fed policy, economists see a decision
coming, but not quite yet. That is likely to prompt central banks to
keep rates on hold at a string of policy meetings on Thursday.
CHANGE OF GUARD
Markets will have more U.S. data this week, showing how much job
creation helped workers open their wallets. Jobs data was
surprisingly strong in November, but consumer spending and business
investment remain weak and persistent political uncertainty still
hangs over the agreement on a new budget.
A report on Thursday is expected to show U.S. retail sales growing
last month. At the same time, inflationary pressure is seen
remaining dangerously low. Data due on Friday is expected to show no
change in prices at factory gates in November.
That data may also prove inconclusive.
"We think the Fed will hold its fire in December and await more data
on growth and inflation," said Julia Coronado at BNP Paribas in New
York. "Our baseline continues to be that the first taper comes in
March," she said.
Adding to the uncertainty, a blackout on Fed speeches before the
Dec. 17-18 policy-setting meeting descends on Tuesday, although
markets will hear on Monday from St. Louis Fed chief James Bullard,
a centrist, and two who want the Fed to quickly end its bond-buying:
Dallas Fed chief Richard Fisher and Richmond Fed chief Jeffrey Lacker.
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A change of guard at the U.S. central bank will not immediately
affect the direction of the Fed's monetary policy, but the U.S.
Senate is expected to vote as early as this week on Janet Yellen's
nomination as the bank's next governor.
CHRISTMAS IN NOVEMBER
On the other side of the Atlantic, the question is the opposite.
Will the ECB break a taboo and consider U.S.-style bond-buying to
help the euro zone recover from recession?
That does not look likely for now. After cutting rates to a record
low of 0.25 percent in November, the bank kept monetary policy on
hold last week and signalled that it would take a break from further
action, unless things turn sour again.
"Christmas was in November," said Christel Aranda-Hassel, an
economist at Credit Suisse. "Further imminent action is not
supported by the ECB's baseline scenario of modest growth and
subdued inflation," she said.
German and euro zone industrial output data will give investors a
sense of how strong the rebound is in Europe, but the ECB also faces
the challenge of wide divergences across the 17-nation currency bloc
and a weak French economy.
The euro zone barely grew in the July-to-September period after
emerging from recession in the second quarter.
Even though morale among businesses in November turned positive for
the first time since March last year, French business confidence
fell and an unprecedented 19 million people are out of work across
the euro zone.
Life is also complicated for the ECB because under its statutes, the
bank is banned from buying bonds directly from governments. But it
can find ways to purchase them from banks, for example, on the
secondary market or accept them as security in return for finance.
Markets expect the ECB's next move will be a further round of cheap,
long-term loans to banks. But that money is not always reaching the
real economy, as bankers are reluctant to lend on to households and
companies are already sitting on cash.
(Additional reporting by Jason Lange in Washington;
editing by
Louise Ireland)
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