We see several key themes that will dominate the mood of investors and traders this week. Theme #1: Focus is on the ECB interest rate decision; Theme #2: BOJ interest rate decision; Theme #3: Australia interest rate decision; and Theme #4: BNM interest rate decision.

Key highlights for this week

• ECB interest rate decision: The ECB’s monetary policy meeting (MPC) will be on March 8. We expect the ECB to leave the current interest rate of -0.1% unchanged and continue its net bond purchasing programme at €30 billion. We project the ECB to end its quantitative easing in 4Q2018. In the meantime, we hope the ECB will address its guidance on the future monetary policy given that February’s inflation data grew 1.2% y/y from January’s 1.3%y/y while the euro remains strong, thus making things more complicated for the ECB in the coming MPC meeting.

• BOJ interest rate decision: We will be focusing closely on the language and tone of BoJ Gov. Kuroda during the coming monetary policy meeting (MPC) which is on March 9. While looking out for more guidance from the BoJ in which case we expect the central bank to end the stimulus in 2019, our worry for now is that any hawkish tone can complicate the situation with the yen likely to gain strength and in turn may put a lid on the upwards inflationary pressure. The economy registered a lower unemployment rate of 2.4% in January from 2.8% in December with the January jobs-to-application ratio staying steady at 1.59 for the second straight month and is at a two-decade high. January’s headline inflation data rose to 1.4% y/y from 1.0%y/y in December.

• Australia interest rate decision: The Reserve Bank of Australia (RBA) is expected to leave the cash rate unchanged at 1.5% on its March 6 monetary policy meeting. High household debt-to-disposable income, which is at an all-time high of 199.7% as of 3Q2017, added with wage growth excluding bonus is slowing, suggesting some downside risk to the economic growth. Thus we expect the policy rate to stay put in 2018. Our focus for this MPC meeting will be on the RBA’s assessment over the global outlook. The 4Q2017 GDP data, scheduled to be released on March 6, is expected to grow by 2.7% y/y (consensus: 2.8% y/y), which would give some gauge on household’s expenditure.

• BNM interest rate decision: The central bank’s monetary policy meeting will be on March 7. We expect BNM to remain neutral on its current accommodative monetary policy after having raised rates by 25bps to 3.25%. The January’s inflation data, which rose 2.7% y/y from 3.5% y/y in December, plus a sluggish PPI figure, which fell by 1.2% y/y in January from 0.3% y/y in December, provide some breathing space, in addition to the strong ringgit against the USD. We anticipate BNM’s tone to remain hawkish on the economic outlook and will monitor closely on the trajectory of the US Fed’s rate hike that will be instituted in 2018. Although our base case for 2018 is for the OPR to stay put at 3.25%, we have now priced in a low 20% chance for a second rate hike of 25bps in 2H2018.

Source: AmInvest Research - 5 Mar 2018