ECB meeting and US payrolls report to drive market moves

• ECB to give more detail on QE programme
• Employment and wage growth to provide guidance on when the Fed will hike
• No change likely in UK monetary policy, but other central banks may ease

Eyes on the ECB... The coming week is likely to again be dominated by speculation over the next moves of central banks. Six of these will hold policy meetings including those of the UK, Australia, Canada, India and Poland. The ECB (Thurs) will likely get most attention. The last ECB policy meeting saw the announcement of its QE programme but some of the detail remains to be filled in. We should also get more detail on whether the ECB plans to restore  Greek banks full access to open-market operations or whether the banking sector will for now have to rely on the Emergency Liquidity Assistance (ELA) programme. The latest ECB staff projections will also be released and these will be watched for indications of the likely effectiveness of the policy moves. Any upward revision to 2016 inflation may be seen as a sign that the QE programme could end before September 2016. Key data in the euro area include German industrial production (Fri), which is expected to show that the combination of the weaker euro and lower oil price is helping to boost activity. Euro area headline CPI inflation (Mon) for February is forecast to show a  smaller decline than in January, and already released German and Italian data point in that direction. The ‘core’ rate may also edge higher but could fall again over upcoming months.

US payrolls to provide guide to Fed policy...  With recent US data disappointing with the exception of the employment report, February’s release (Fri) takes on even more importance. Payrolls are forecast to grow by more than 200k in February for the 12th successive month, while an expected decline in the unemployment rate to 5.6% would be further evidence of a tightening labour market. Investors will be equally interested in earnings growth, which rose sharply in January after disappointing in December. Walmart’s recent announcement that it is boosting wages is anecdotal evidence of the impact of emerging wage pressure. Any signs wages moved up again would reinforce expectations of a Fed rate hike around mid -year. Other data include construction (Mon), consumer spending and spending deflator (Mon), ISMs (Mon and Tues), and international trade (Fri). These could be mixed, with sectors particularly exposed to a strong dollar likely to show slower growth. The trade figures may also be distorted by a West Coast longshoremen strike.

Bank of England to stand pat...Thursday’s MPC meeting is not likely to see any change in monetary policy. With the annual inflation rate expected to fall below zero , the Bank of England seem set to do nothing in the near term. However, a number of comments by MPC members over the past week reinforced the impression that there remains a sizeable probability they will raise policy rates before year end if economic conditions develop as expected.  Economic data this week could be mixed. The fall in the February Lloyds Business Barometer suggest that the manufacturing and services PMIs could be weaker than expected. However, mortgage approvals for February may signal that housing market activity has troughed.

But other central banks may ease.. Some other central banks seem more likely to act.  While the head of the Bank of Canada has tried to dampen expectations that the BoC will initiate a second successive rate cut, there remains a chance that it will move. There is a bigger risk that the Australian central bank will cut interest rates for the second successive month. It is rare for the RBA to one-off moves, while recent disappointing capex figures point to downward risks for economic growth.

2015 Chinese growth target...The Chinese People’s Congress is due to kick off on Thursday. During this the Premier may announce the growth target for 2015, which is likley to be lower than last year’s.