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Week Ahead – Focus turns to ECB, BoC and RBNZ rate decisions, China data

Monetary policy will take centre stage next week as the European Central Bank, the Bank of Canada and the Reserve Bank of New Zealand meet for their latest policy decisions. The US will take a back seat with no major data to report but China will attract attention for some key data releases.

The first data to come out of China next week are the closely watched trade numbers on Tuesday, which continue to grab markets’ attention as investors look for signs of a turnaround in industrial activity. Exports are forecast to drop by 12.5% y/y in February – this would be slightly worse than the 11.2% rate in January. Imports are forecast to ease though, with the annual drop decelerating to 10%. CPI figures out on Tuesday are expected to show the inflation rate continuing to edge higher, rising to 1.9% y/y in February. More key indicators will follow on Saturday but they won’t do much to alter the outlook of a slowing economy. Annual growth in Industrial production is expected to decline to a 1-year low of 5.6% in January and business spending to slow to 9.5%. Retail sales are also forecast to moderate with annual growth dropping below 11% to 10.8%.

The Bank of Canada will be the first out of the three major central banks to announce its latest policy decision on Wednesday. No change in interest rates is expected as a weak Canadian dollar continues to offset some of the damage from tumbling oil prices. GDP data for the fourth quarter surprised on the upside and with annual inflation running at 2%, the BoC is unlikely to be in a rush to cut rates anytime soon. Also to watch for the loonie will be Friday’s February jobs report.

The Reserve Bank of New Zealand will make its latest policy decision on Thursday and is also expected to hold rates. Like Australia, GDP growth in New Zealand has held up well in the face of declining commodity prices and slowing trade. However, low inflation is a bigger concern in New Zealand as annual CPI was just 0.1% in the fourth quarter – the lowest since 1999. The RBNZ is likely to cut rates further this year but most analysts are not forecasting a move next week.

Following the RBNZ’s decision on Thursday is the European Central Bank’s announcement on the same day. But before then, German industrial data will come into focus. German factory orders are out on Monday and are expected to decline for a second consecutive month, by 0.3% m/m in January. However, industrial production numbers on Tuesday are forecast to show data to the contrary with output rebounding by 0.5% over the month in January after a 1.2% drop the prior month. For the Eurozone, the second estimates of fourth quarter GDP growth are due on Tuesday, though no revision to the initial estimates are expected. The ECB will hold its much anticipated policy meeting on Thursday where it’s widely expected the central bank will cut its deposit rate again by another 10bps to -0.40%. ECB officials in recent weeks have expressed concern about the low inflation rate across the euro area, which fell back into negative territory in February. A surprise boost to the size of the asset purchase program can therefore not be ruled out. Such a move would put pressure on the euro which has been ignoring the ECB’s latest talk of more stimulus and has held steady against the dollar.

Finally, GDP revisions out of Japan and UK industrial production figures should also be interesting to watch. Japanese GDP growth for the fourth quarter is likely to get revised down slightly from an annualized rate of -1.4% in the preliminary estimate to -1.5%. Meanwhile the UK could see some upbeat numbers next week after this week’s disappointing PMI readings. Both industrial and manufacturing output change are forecast to swing back into positive territory in January following negative growth in recent months. Also to eye for the UK will be trade and construction data on Friday.

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