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Weekly Market Outlook: ECB and BoJ meetings

Investors to focus on ECB's forward guidance

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The economic calendar for the week ahead sees the Bank of Japan and the European Central bank taking center stage. Some economic releases across various economies are also on the cards, making it a somewhat busy week.

The Bank of Japan will be holding its meeting on Wednesday this week. No changes from the BoJ as it continues to bide time until October when the proposed sales tax hike will be introduced. In the meantime, officials are likely to maintain the status quo with the likelihood of references to the recent strength in the Japanese yen.

The ECB meeting is due later in the week on Thursday. No changes on the radar from the ECB to its monetary policy. Speculation is high that the ECB could come out with a dovish statement given the deteriorating conditions in the economy.

On the economy front, data from the U.S. will see the release of the durable goods orders report and retail sales data for December. Other data points over the week include housing data such as building permits, housing starts, and existing and new home sales report.

Australia will be reporting its monthly employment figures this week. New Zealand will be releasing its fourth quarter inflation data.

From the UK, the monthly ILO labor market data will be coming out while China will be releasing its GDP numbers for the fourth quarter of 2018.

ECB to remain on the sidelines

The European Central Bank will be holding its first monetary policy meeting of the year this week on Thursday. No changes from the central bank as far as the key rates are concerned.

Given that the ECB ended its QE program as recently as December, the focus is likely to turn to the economic performance of the region.

With the most recent data suggesting that the Eurozone economy overall could experience another slow pace of growth in the fourth quarter of 2018, Draghi is likely to come out with a dovish and a cautious statement on monetary policy.

The markets have pushed back expectations of a rate hike from the middle of this year until next year. The December ECB minutes showed that officials also discussed re-introducing the targeted long term refinancing operations for the European banks. It is likely that Draghi could mention this as well.

However, the TLTRO operations are likely to be announced only at the March meeting. This gives the ECB officials some time to scrutinize the current slowdown in the economies closely.

Ahead of the ECB meeting, earlier in the week data from IHS Markit will show the flash PMI’s for the manufacturing and services sector which could reflect how the European economy fared in January.

A week later, the flash GDP estimates for some of the major Eurozone economies and the Eurozone itself will be coming out. As a result, the ECB could be looking to buy some more time before announcing further measures.

U.S. housing data and retail sales

A somewhat slow week from the U.S. will see the release of some reports covering the housing market. These include the building permits, housing starts, new home sales, and existing home sales report.

There has been a slowdown in the housing markets and higher interest rates. It is likely that we could see a further slowdown in the sector. However, with wages rising at a faster pace in December, the housing data could be somewhat better.

Elsewhere, the December retail sales report will be coming out. The data covers the holiday season, so the retail sales could score better compared to November. Retail sales peaked at 0.8% in October before easing to 0.2% in November.

There are rumors that due to the partial shutdown, the release of the U.S. retail sales report could be delayed.

The week ahead also marks the Fed blackout period before the FOMC meeting held during the last week of January.

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