Is it just a cold or something more serious?
FRANKFURT (Reuters) – Is it just a cold or something more serious?
That’s the question investors hope will be answered this week by a policy update from the European Central Bank, fresh euro-zone and US economic data and earnings reports from some of the world’s largest technology firms.
Cold weather in the first quarter is among temporary factors blamed for a spell of poor economic readings from Europe and the United States, with some analysts already betting on a rebound in the summer.
But some fear this minor ailment will develop into something more serious if any of a number of looming risks – ranging from a trade war between the US and China to a widening of the Syrian conflict – comes to pass.
ECB President Mario Draghi is expected to underscore these concerns when he speaks on Thursday after a policy meeting, which is forecast to leave unchanged the ECB’s plans for a gradual exit from its aggressive monetary stimulus.
“The soft patch should only strengthen the case for gradualism, which ECB officials have been building since the start of the year,” Pictet Wealth Management economist Frederik Ducrozet said.
The ECB is expected to wind down its €2.55 trillion bond-buying program by the end of the year. But some economists have been pushing out their expectations for a rate hike to the second half of 2019 after the recent soft data.
The odds on a rate hike by the Bank of England in May have also lengthened after a sharper-than-expected slowdown in inflation in the first three months of 2018.
Ironically, one of the few prices that Draghi and his peers at major central banks might like to stay low – that of oil – rose to a three-and-a-half-year high last week as producer nations continue to drain inventories.
This makes fuel prices more expensive for importing countries, eating into consumers’ and companies’ spending power.
US President Donald Trump was quick to react to the surge in the price of crude, saying on Friday the oil-output reductions would not be tolerated.
TRADE WAR
It was the latest in a series of threats and protectionist moves by the US administration – primarily aimed at China – that have kept entrepreneurs, investors and consumers on edge for the past year.
Trump’s administration has imposed tariffs on imports of steel and aluminum and most recently banned US companies from selling parts to Chinese telecom equipment maker ZTE for seven years.
China announced hefty anti-dumping tariffs on imports of US sorghum and measures on synthetic-rubber imports from the US, European Union and Singapore.
“When investors do not know under what terms they will be trading, when they don’t know how to organize their supply chain, they are reluctant to invest,” International Monetary Fund Managing Director Christine Lagarde said last Thursday.
Consumer spending is also showing early signs of faltering, with Taiwan Semiconductor Manufacturing citing softer demand for smartphones when cutting its revenue forecasts.
Investors will be looking for further evidence that the economic cycle is turning down when Facebook, Amazon and Google’s Alphabet report their earnings this week.
Trump will play host to French President Emmanuel Macron during a three-day state visit that starts on Monday and will meet with German Chancellor Angela Merkel on Friday.
The leaders are expected to discuss the situation in Syria – where the US, Britain and France launched missile strikes against Syrian targets on April 14 – and a EU request for a permanent exemption from US tariffs.