Finance week ahead: Central bankers in the spotlight with rates in US, Japan to be set
Once again central bankers will be in the spotlight this week with both the US Federal Reserve and Bank of Japan's rate-setting committees meeting.
The Fed has a leaning to raising rates.
For the BoJ, the only possible movement to tackle its shrinking, deflationary economy is to cut deeper into negative territory.
That being said, there is almost no chance the Fed will hike — the market puts it about a 4 per cent possibility — in the early hours of Thursday morning, while on Tuesday the BoJ is highly likely to stay put at the official rate of minus 0.1 per cent.
The epic effort by the European Central Bank to shoot itself in the foot with its so-called "monetary bazooka" is a salutatory lesson that in monetary policy communication is almost as import as action.
While ECB's package exceeded market expectations, President Mario Draghi's unsolicited comment that further cuts wouldn't be needed soured things for the markets, turning a European rally into a rout.
The following day the ECB bounced out to say "No, no, no we have plenty of tools left in the shed to fix the economy" which comforted the market sending European and US investors on a buying spree.
On Friday, Wall Street's S&P 500 index jumped 1.6 per cent, to complete its fourth successive week of gains.
In Europe, the broad Eurostoxx 600 rose 2.6 per cent, with Italian and Spanish banks up about 5 per cent, showing investors didn't seem overly concerned about the impact of negative interest rates on banking profitability.
US data is steadily getting closer to the Fed's dual objectives of 2 per cent inflation and maximum employment.
As well, domestic demand is solid and US consumers seem happy enough.
Despite repeated statements from the Fed that any move will be "data dependent", the capacity to return rates to normal levels depends on the markets becoming far less skittish.
Unlike the last meeting, this time around it is an "all bells and whistles" event with a media conference and an update on the Fed's projections.
The key message the markets will be looking for is what impact, if any, the largely improved financial conditions is having on the Fed's thinking.
BoJ governor Haruhiko Kuroda knows a thing or two about the fickle nature of markets and rate cuts, having seen the Nikkei slip almost 10 per cent since edging official rates down from zero down to minus 0.1 per cent in late January.
He is likely to pass on the chance to repeat that dose this time.
Unemployment likely to stay at 6 per cent
On the local front the key data of the week will be jobs (Thursday).
It's always a bit of a raffle but the consensus view is for unemployment to remain about 6 per cent and job creation to rebound with 12,000 new jobs in February, having shed about 8,000 in January.
With fears of a global meltdown receding, unemployment along with a strengthening Australian dollar are now the biggest worries for the RBA.
Last month the RBA lowered its unemployment forecast to 5.8 per cent.
While the unemployment rate nudged up to 6 per cent last month, it has been sitting in a tight band between 5.7 and 6.3 per cent for a year.
Citi's Paul Brennan said unemployment rate would need to rise above 6.5 per cent, and with little prospect of a reversal, for the RBA to consider cutting.
"At this stage we don't believe that the Australian dollar has risen sufficiently to trigger such a deterioration in the labour market," Mr Brennan said.
However the risks are rising with the dollar hitting an eight-month high on Saturday morning to almost US76 cents.
"With further easing measures announced by the ECB, along with the previous announced measures by the PBoC (People's Bank of China) and BoJ and potentially a delay to further tightening by the Fed, the risk is that the Australian dollar pushes higher," Mr Bennan argued.
"This could cool hiring intentions further in those service industries that have been at the forefront of the rebalancing of the economy."
A higher dollar will also cut the costs of imports and when coupled with the current very low wage growth outcomes, the RBA's forecast for inflation to hit the sweet spot halfway between 2 and 3 per cent looks in danger of coming unstuck.
The minutes of the RBA's last meeting will be released (Tuesday) but are already looking a bit dated and of more interest to archivists than the market.
Gorgon to make its first shipment
While first planned a couple of decades ago, Australia's largest coal-bed methane project Gorgon is finally set to make its first shipment this week.
Located on Barrow Island, off the WA coast, it has a capacity to produce 2.1 billion cubic feet per day of LNG, slightly less than the current output of the giant North West Shelf project, further up the road.
Named after some fairly frightful sisters in Greek mythology — and from the etymological root meaning dreadful — Gorgon's backers, including US oil major Chevron, have endured some monstrous cost blowouts to get to the stage where it could start returning some money.
The project's budget was originally $50 billion, but after six years it had blown out by 50 per cent to around $75 billion.
While it has been at the centre of controversy over concerns over its place in the delicate Barrow Island ecosystem, the plant is one of the first LNG projects in the world to use carbon sequestration to cut its emissions.
The US Energy Information Agency says while the sequestration project added an additional $US2 billion to the total cost, it has the potential to cut emissions by around 40 per cent.
|Tuesday||RBA minutes||Minutes from March 1 meeting|
|New car sales|
|Thursday||Labour force||Feb: Unemployment about 6 per cent with 30,000 new jobs forecast|
|RBA speech||Assistant Governor Guy Debelle out and about|
|Myer half-year result||Myer expected to produce a half-year profit of about $50 million|
|Friday||Leading index||Feb: Westpac series looking at conditions six to nine months ahead|
|Tuesday||US: Retail sales||Feb: About 3 per cent increase year-on-year forecast|
|US: Producer prices||Feb: Fell in January, forecast to rise this time|
|JP: BoJ rate decision||On hold at -0.1 per cent|
|Wednesday||US: Fed rate decision||Early Thursday morning (Australian time). On hold 0.5 per cent|
|US: Inflation||Feb: A key number for the Fed. Zero in January, could be negative this time|
|US: Housing starts||Feb: Disappointing -4 pe rcent last month, should jump up|
|US: Industrial production||Feb: Not robust, likely to be flat or even negative over the year|
|Friday||US: Current account||Q4: A slightly narrower deficit of $US110 billion forecast|
Source: ABC News