After last week's instalment of the SuperMario show, this week we have the Bank of Japan and the Fed ...... and the Bank of England and the Swiss National Bank ...... oh, and the Norges Bank (that's Norway)

Monday 14th March 2016

After last week's instalment of the SuperMario show, this week we have the Bank of Japan and the Fed ...... and the Bank of England and the Swiss National Bank ...... oh, and the Norges Bank (that's Norway)

ref :- General

At the start of what might be a somewhat interrupted week blog-wise, it might be useful to remind ourselves of what's coming up. We'll ignore the avalanche of economic data releases for now, and just concentrate on the five monetary policy decisions to be made by those august institutions listed above. As ever, and it's particularly the case when no action is taken, look out for the language used in the policy statements and comments by officials for clues about what they're really thinking with regard to future policy.

Tuesday: the Bank of Japan  --  the BoJ caught many off-guard in January when they cut their headline rate into negative territory (minus 0.1%), so they have some recent form in wrong-footing markets. Nevertheless, very few expect a surprise this time round (well, by definition you don't, do you?). They are likely to say that more time is needed to assess the impact of the last cut, which is absolutely fair enough. What they are NOT likely to say is how surprised and disappointed they themselves have been by the strength of the Yen despite a rate-cut.

Wednesday: the US Federal Reserve  --  Ah, the big one ..... even though there's very little chance of a rate increase (actually, about 4% according to futures markets). Examine closely what's said  --  we can expect quite a lot on tightening labour markets and the first signs of upticks in inflation. It's remarkable how sentiment can change: back at the last hike in December, the Fed's dot-plot (rate forecasts of individual members) revealed a median expectation of four hikes in 2016. As we've said, that seemed too hawkish at the time and when markets were in free fall at the start of this year it looked like a ludicrous suggestion. It still looks very toppy, but at one stage futures markets were implying NO rate hikes at all in 2016 and now? Well, they say there won't be one this week and probably not one in April but June now looks 50 / 50. In fact, certain surveys amongst economists are now verging on the side of just more likely than not, and that there will be TWO hikes before the end of the year. It would not be unreasonable to guess that the Fed might suggest that three are in the offing, though that might have more to do with preparing against nasty shocks than reality.

Thursday: the Swiss National Bank  --  Nothing expected here, largely because rates are already so low (minus 0.75%) and because of relief that last week's more aggressive than expected easing by the ECB hasn't resulted in Swiss Franc strength versus the Euro. Currency strength remains an issue though, and the SNB has been known to spring surprises.

Thursday: the Bank of England  --  stuttering economic data means no chance of a hike, and if anyone thought the data is weak enough to encourage a cut, BoE Governor Mark Carney's doubts about the desirability and efficiency of negative rates might have caused them to think again. So no change. Look out also for Chancellor George Osborne's budget speech on Wednesday. His plans for a balanced budget by 2020 are unravelling somewhat, but he is still expected to implement £4bn in spending cuts to deal with unexpected shortfalls. This would be entirely at odds with all kinds of organisations (OECD, IMF, G20) who have recently been calling for fiscal stimulus.

Thursday: Norges Bank  --  Norway, as an oil-dependant nation, is always of interest. The recent stabilisation in the oil price will be a small relief but as an offshore producer Norway needs higher prices and growth is struggling. Expect a cut in the deposit rate from 0.75% to 0.5%.

Incidentally, the reception given to the raft of measures adopted by the ECB has been largely favourable but some felt that they had "missed a trick" (Financial Times, "The ECB has lost the plot on inflation").  What's needed, they argue, is a steepening of the yield curve which might have been achieved by a more aggressive cut to the discount rate (the short end) and less yield-lowering bond purchases (QE  --  the long end). This would help the banking system which traditionally borrows short and lends long (at higher rates). The lower headline rate would also help to weaken the euro and thus import inflationary pressure. Well, you can't please everybody and ECB boss Mario Draghi can take some comfort in this morning's surprisingly strong Eurozone Industrial Production numbers for January : up 2.1% m-on-m, up 2.8% y-on-y and the strongest for over 6 years. It's only one month in an erratic measure, but still .....