The Week of the Central Banks

This will be a busy week on the global economic calendar, including several meeting by central banks, which should give clearer signs of the growth expectations for the next year, amidst low oil prices and low inflation. Let’s start with a run down of what’s to come.

Central banks, quantitative easing, and a Greek election.

The week will start slow – markets are closed today in the U.S. for Martin Luther King Jr. Day.

Tomorrow, we’ll see major numbers for China for December and the fourth quarter, including real GDP and industrial production, and the beginning of a two-day meeting by Japan’s central bank.

The big day for Canada is Wednesday, when we’ll see the Bank of Canada’s policy announcement and monetary policy report. There’s no expectation of a rate hike, but analysts will be watching closely for hints of when a hike could come. Wednesday also means the launch of the World Economic Forum in Davos, Switzerland, where global inequality is expected to be one of the major issues on the table. Housing starts will also be out Wednesday for the U.S., and Brazil’s central bank will meet.

Thursday is the day that European markets are waiting for. The European Central Bank will meet to consider stimulus for the limping eurozone, and expectations the ECB will fire a “quantitative easing bazooka” – the Financial Times’ words, not mine! – have been affecting markets for months – this morning, optimism over QE has already pushed European markets to a seven-year high.

On Friday, we’ve got inflation numbers for Canada, and heading into the weekend there’s the Greek election to watch for. Anti-austerity party Syriza may well win, stoking fears among other eurozone countries that a Greek exit from the union could be back on the table.

After getting a bounce on Friday, oil slides again. Oil prices had the first weekly gain in two months last week, pushing the TSX/S&P Composite Index up to a triple-digit gain on Friday, as markets in New York also got a rebound after a five-day slump. But this morning, oil has had a bit of slide (currently WTI is at $48.21) as Iraq announced it was pumping record amounts at four million barrels a day. The news comes even as the U.S. broke a weekly production record dating back to the early 1980s and OPEC maintains supply, causing futures to fall sharply in London this morning.

Chinese regulators bring in margin-lending restrictions. And the Shanghai Composite, known for being wildly volatile, fell 7.7 per cent – the largest drop since 2008. The drop came after the Chinese regulatory body banned three of the largest brokerages from offering margin accounts for three months. Margin accounts allow for borrowing to pay for stock trades, and are seen as one of the the major factors fuelling huge spikes in the Chinese stock market, even as domestic growth has slowed.

Davos and the one per cent. There were plenty of quips about how the price of champagne and fondue is expected to jump at the World Economic Forum after the Swiss central bank unpegged the franc from the euro last week, saying it was too expensive to keep the in-demand currency low. The forum begins in the Swiss resort town of Davos this week, but a debate about economic inequality is already ramping up – after the charity Oxfam, expanding on data from an annual Credit Suisse report, claimed the world’s one per cent now own almost half* of the world’s wealth.  The IMF is also expected to release data shortly showing a persistently uneven economic picture, despite predictions that lower oil prices would be a net gain for world economies. On an earlier note, this morning the Swiss franc fell back to parity with the euro – so economists shouldn’t worry about the price of champagne just yet.

Young, unemployed, tech-crazy… and on foot. Young people are increasingly less likely to buy cars – at least until they have kids. A lack of employment for young people is likely a factor, but as Chris Sorensen points out, bigger cultural changes are afoot, causing the auto industry to roll out all kinds of new tricks.

Need to know:
TSX: 14,309.41 (-267.59), Friday
Loonie: 83.56 (-0.02 cents), Friday
Oil (WTI): 48.21, Monday morning

*Correction: Yesterday I said the richest 1 per cent now own more than the rest of the world put together – but that’s not true! Oxfam says the wealth of the 1 per cent is currently at 48 per cent of the world’s wealth and will soon surpass the rest of the world – probably this year. Sorry!