Analysis: Spotlight on ECB rate meeting as inflation dips

THE European Central Bank’s (ECB) monthly rate meeting will focus minds this week on the debate over quantitative easing in the euro zone, as a series of data releases on both sides of the Atlantic sheds more light on European woes and US strength.

Final purchasing managers’ indices (PMIs) for Europe and the US, monthly jobs data and the ECB’s updated forecasts, will provide clues to assessing the health of both regions.

The ECB staff inflation and growth estimates for the EU are much awaited after data showed on Friday that inflation was back to a five-year low, putting more pressure on the bank to take action.

Particular attention will be paid to internal debate within the ECB over quantitative easing (QE) and to ECB president

The ECB is expected to leave key rates unchanged and wait for next year to decide…

Mario Draghi’s comments on the data on Thursday, after his pledge to act to lift “excessively low” inflation.

The ECB is expected to leave key rates unchanged and wait for next year to decide whether to take the leap to government bond-buying.

A decision on QE might come as early as the first quarter, vice-president Vitor Constancio said last week. But arch-hawk German ECB policymaker Jens Weidmann responded that there were “legal limits” on printing money to buy government bonds.

“The ECB’s communication has not always been crystal clear this year, but overall it has moved steadily towards a more dovish stance despite internal tensions within the governing council,” French bank Crédit Agricole wrote in a note. “We expect no sovereign QE announcement at the December 4 meeting but a more formal, albeit conditional commitment to broader asset purchases.”

Jobs

Friday’s monthly US job figures will be the key data in the US. Non-farm payrolls are expected to show an increase of 228 000 in November, according to a poll.

The unemployment rate fell to a six-year low in October, underscoring the economy’s resilience in the face of slowing global demand. Wage growth remained tepid, suggesting little need for the US Federal Reserve to hurry lifting interest rates.

On Thursday, the Bank of England looks set to keep interest rates on hold at a record low 0.5 percent – that’s the unanimous expectation of analysts. The day before that, Finance Minister George Osborne will deliver his Autumn budget update to parliament.

The first hike in British interest rates is expected to come in the third quarter of 2015, six months later than previously thought, owing to low inflation, sluggish pay growth and a weak euro zone economy, a poll showed.

Final purchasing managers indices are published after flash estimates came in lower than expected for the euro zone. New orders fell for the first time in more than a year.

The US flash PMI showed a fifth consecutive monthly slowing in growth in services, although the pace of expansion remained robust by historical standards.

In China, the official manufacturing PMI will probably show on Monday that manufacturing slowed slightly in November as demand remained sluggish, a poll showed.

However, China’s central bank would wait until fourthquarter economic data was out and monitor US and Japanese monetary policy before considering any more rate cuts or easing, a central bank adviser said last week.

Falling oil prices will be another point of focus, after Opec decided not to cut crude production last week despite global oversupply.

Besides adding to Draghi’s headaches as it pushes inflation in Europe even lower, the fall in oil prices is also hurting the economies, currencies and financial markets of many producer countries. – Reuters