Outlook brighter, but not enough yet for higher rates

Sun May 17, 2015 6:08am EDT
 
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By Ross Finley

LONDON (Reuters) - Prospects for a step-change in global economic growth are better than they have been in many years, but much depends on solid evidence that an awful first quarter for the United States is far in the rear-view mirror.

With Wall Street's benchmark stock index near a record high and bond yields on the rise, the coming week is packed with important global data releases and policy minutes from three major central banks, including the U.S. Federal Reserve.

Several of the world's top central bankers will meet at a three-day forum later in the week hosted by the European Central Bank in Sintra, Portugal, and billed as a discussion on inflation and unemployment in Europe.

Flash Purchasing Managers' Indexes for May also are due on Thursday, with little change expected to the overall story: a solid bounceback in the U.S., steady growth in Europe, but ongoing weakness in the world's second-largest economy, China.

Taken together, the data may not be enough to convince many that the global bias towards lower rates and easier monetary policy from the world's central banks is nearing an end, despite the bond market rout.

Indeed, minutes from the Bank of England's May meeting no doubt will re-assure investors a rate rise isn't likely for another year, while ECB President Mario Draghi has made it clear he has no intention of tapering its bond purchases.

The Fed, having long been expected to raise rates by June, will now struggle to justify a first rate rise in nearly a decade so soon after a terrible quarter in which the economy almost certainly shrank.

September is more likely, although many traders in financial markets are extending a stand-off with the Fed, betting rates won't rise until later this year and perhaps not until 2016.   Continued...

 
A trader works on the floor of the New York Stock Exchange May 15, 2015.  REUTERS/Brendan McDermid