After yesterday’s European Central Bank (ECB) policy update smashed expectations, delivering lots of excitement in finance land and moving everything from equities and commodities to bonds and currencies, we wonder whether we could be in store for more bold monetary policy updates next week that could further boost appetite for equities and see the major indices and share prices push even higher. The ECB really threw the kitchen sink at the Eurozone’s problems of slow growth, absent inflation and cautious banks yesterday. And markets have eventually digested it well. Now what will the handsome selection of its central bank peers have to say for themselves next week? Could we be in for another exhilarating dose of market action depending on what is said?

First up is the Bank of Japan (BoJ) on Tuesday. It has been struggling with a failed late-January foray into negative interest rates which should have weakened the Yen currency. But markets didn’t get the memo, still treating it as a safehaven and biding it up to 4-month highs versus the US Dollar! Is the Japanese central bank in a position to move again so soon? We think it unlikely, with some brighter economic data points of late and some suggestions about not taking interest rates further into negative territory meaning it will probably hold pat to reflect and digest, as well as waiting to see what peers decide to do which should ultimately prove good for markets.

The US Federal Reserve is up next (Weds) and while we forecast no policy change (no rate rises for the rest of this year in our view), its words could nonetheless be powerful. December saw it take a big decision to hike rates for the first time in 8 years and markets didn’t like that at all, still uncertain about global growth and recovery. While The Fed may want to maintain its message that the US is improving which warrants further rate rises (jobs solid, growth good, inflation improving), we have recently noticed some changes of heart among Fed members who are moving away from being very hawkish (pro rate rise, tighter monetary policy). A more dovish message on Wednesday would nicely dovetail with yesterday’s ECB update (loose policy made even looser), negating market fears of further global monetary policy divergence. Another good outcome for markets.

Other banks on the calendar include the Swiss National Bank (SNB) and the Bank of England (BoE) on Thursday, however we do not expect any change from either. While ECB President Draghi impressed with his actions, words are likely to prove more powerful from his peers next week – some more so than others of course. Oh, and while a slowing China remains a major worry for many, note that we have some China data due out over the weekend which could quite easily decide the direction of market sentiment before the central banks get to have their say. It sure is busy down here! Busy, busy busy!

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Mike van Dulken, Head of Research, 11 March