GLOBAL ECONOMY WEEKAHEAD-China reserves data may put cat among global central bank doves

Fri Feb 5, 2016 12:38pm EST
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By Jonathan Cable

LONDON Feb 5 (Reuters) - Global markets have been in turmoil since the start of the year, with stocks and commodities prices reeling, eroding inflation and making central banks increasingly dovish -- a trend that could continue with more weak economic data.

China, a focus of much of the recent market concern, is due to release forex reserves data at the weekend. That will be closely watched after December's record drop, recorded as Beijing burned through its foreign cash holdings to shore up the yuan currency.

U.S. retail sales figures will meanwhile give clues to the state of consumer confidence in the world's largest economy, as will U.S. Federal Reserve Chair Janet Yellen's testimony to the House Financial Services Committee on Wednesday.

Oil prices have tumbled 70 percent since mid-2014, driving down inflation and adding to expectations that central banks will be forced to maintain or even ease further their already ultra-loose monetary policies.

Late last month the Bank of Japan unexpectedly took the plunge into negative interest rates, following in the wake of the European Central Bank, which will more than likely shave another 10 basis points off its own sub-zero deposit rate in March.

For its part, the U.S. Fed is looking increasingly unsure about when it will next raise rates, while economists in Reuters polls have pushed back expectations for the first Bank of England hike by six months in the space of three weeks.

"While we don't think that the world's economy is set to fall off a cliff, the problem is that there is a sizeable output gap, with significant structural excesses in the emerging economies, particularly China, and in commodity-producing countries," said Hiroshi Shiraishi at BNP Paribas.

China's foreign currency reserves are expected to have dropped to $3.2 trillion in January from $3.33 trillion the previous month, a Reuters poll of 13 economists found.   Continued...