Markets Look To Central Bank Decisions For Direction

During the upcoming week traders and investors will be heavily focus on global central banks as the European Central Bank, Bank of Japan, People’s Bank of China, and Bank of Canada deliver interest rate and decisions.

Aside from the central bank action, other important events on the economic calendar include US earnings seasons, preliminary EU PMI manufacturing, preliminary US PMI manufacturing, and CPI data from the United Kingdom economy.

Banks are once again under the microscope during US earning season, with Goldman Sachs, Morgan Stanley and Bank of America taking center stage in early week trade. Markets participants will also look to fourth-quarter earnings from Netflix, INTEL, and IBM.

The US and EU PMI manufacturing reports are going to take on greater importance, due to the fact that both economies are starting to weaken as COVID-19 dampen manufacturing activity.

German and French PMI data will also be watched extremely closely, as both economies manufacturing sectors are the engine of growth for much of Europe at the moment. A headline reading under 50 could sink the euro currency and EU stocks.

European Central Bank

Markets are not pricing in any chance that the ECB will be adjusting rates during this week meeting, however they will be looking for updates on the new policy measures the central bank recently introduced and the situation with EU inflation.

ECB policy members have also started to comment of the strength of the euro currency, which leaves plenty of room for ECB President Christine Lagarde to comment on the single currency during the press conference.

The ongoing rise in the Italian bonds is also likely to be a hot topic, and the ECB President may be faced with a host of questions about the Italian economy, and Italian debt.

Bank of Canada

The Bank of Canada interest rate decision is likely to be extremely interesting as many analysts are predicting that the central bank will deliver a “micro interest rate cut”. The theory is the that central bank will deliver rate cuts in small increments, due to the worsening activity in the Canadian economy.

Rising COVID-19 infections and a negative December monthly jobs numbers are all reasons why the Bank of Canada could come out with dovish commentary, and a potential rate cut. Watch out for the trading action in the USDCAD, as the Canadian dollar could tank if the BoC follow through.

Bank of Japan

The Bank of Japan are most than likely going to follow the chorus of other central banks across the world, and express concerns about rising COVID-19 infections, and the possibility of another downturn for the Japanese economy.

BoJ members are likely to reaffirm their commitment to ultra-loose monetary policy and offer a downbeat assessment of the Japanese economy as the country goes into lockdown.

Watch out for action in the Japanese yen and the Japanese bond market if the central bank discusses upping bond purchases.