By Jonathan Cable
LONDON, Feb 5 (Reuters) - Global markets have been in
turmoil since the start of the year, with stocks and commodities
prices reeling, eroding inflation and making central banks
increasingly dovish -- a trend that could continue with more
weak economic data.
China, a focus of much of the recent market concern, is due
to release forex reserves data at the weekend. That will be
closely watched after December's record drop, recorded as
Beijing burned through its foreign cash holdings to shore up the
yuan currency.
U.S. retail sales figures will meanwhile give clues to the
state of consumer confidence in the world's largest economy, as
will U.S. Federal Reserve Chair Janet Yellen's testimony to the
House Financial Services Committee on Wednesday.
Oil prices have tumbled 70 percent since mid-2014, driving
down inflation and adding to expectations that central banks
will be forced to maintain or even ease further their already
ultra-loose monetary policies.
Late last month the Bank of Japan unexpectedly took the
plunge into negative interest rates, following in the wake of
the European Central Bank, which will more than likely shave
another 10 basis points off its own sub-zero deposit rate in
March. ECB/INT
For its part, the U.S. Fed is looking increasingly unsure
about when it will next raise rates, while economists in Reuters
polls have pushed back expectations for the first Bank of
England hike by six months in the space of three weeks.
BOE/INT
"While we don't think that the world's economy is set to
fall off a cliff, the problem is that there is a sizeable output
gap, with significant structural excesses in the emerging
economies, particularly China, and in commodity-producing
countries," said Hiroshi Shiraishi at BNP Paribas (PA:BNPP).
China's foreign currency reserves are expected to have
dropped to $3.2 trillion in January from $3.33 trillion the
previous month, a Reuters poll of 13 economists found.
Beijing has been struggling to underpin the yuan as the
growth rate in the world's second-largest economy grinds to its
slowest levels in a quarter of a century. DOWN FOR FEEBLE EZ GROWTH
Euro zone economic growth was probably a paltry 0.3 percent
in the final quarter of 2015, data are likely to show on Feb.
12, matching the third quarter's pace and with inflation nowhere
near the ECB's 2 percent target ceiling, expectations are high
for more easing.
"The economy in the euro zone is not gathering momentum. For
a long time we have been expecting the ECB to loosen its
monetary policy again, presumably now in March," said Jorg
Kramer at Commerzbank (DE:CBKG).
ECB President Mario Draghi signalled last month further
policy easing could be coming within months, leading markets to
price in a deposit rate cut in March.
While economists are pretty convinced the ECB will ease
again next month they are less sure about how aggressive the
U.S. Fed will be after it hiked interest rates for the first
time in nearly a decade at the end of last year.
U.S. employment gains slowed more than expected in January
as the boost to hiring from unseasonably mild weather faded, yet
surging wages and an unemployment rate at an eight-year low
suggested the labour market recovery remains firm.
The mixed numbers make it hard to predict the tone Fed Chair
Yellen will adopt at her semi-annual testimony to the House
Financial Services Committee on Wednesday.
"This will be one of the more closely watched and
scrutinized testimonies in some time as the market tries to
gauge whether March is still in play for another Fed rate
increase," wrote economists at RBC Capital Markets.
"Given the lack of any real calming in the markets, we think
the odds that Yellen heavily promotes a March move are slim."
Financial conditions have tightened considerably in the
weeks since the Fed raised interest rates and monetary policy
makers will have to take that into consideration should that
phenomenon persist, president of the Federal Reserve Bank of New
York, said on Wednesday.
Faltering emerging market growth has exacerbated global
concerns and the Reserve Bank of Australia and the Bank of
Canada have also highlighted risks, keeping the possibility of
policy easing on the agenda.
The Chilean, Peruvian and Philippine central banks all meet
in the coming week but no change is expected from them. Sweden's
Riksbank may well cut its benchmark rate by 10 basis points to
-0.45 percent on Thursday.
"The Riksbank has so much skin in the game that it is
unlikely to back off now if it thinks inflation is about to head
south again - and low oil prices mean this is very likely," said
Colin Bermingham at BNP Paribas.
(Editing by Hugh Lawson)