When ECB policymakers meet on Thursday, they will be painfully aware that the eurozone economy is still being held back by lockdowns to tackle rising coronavirus infections while the US, China and the UK are reopening and rebounding faster.
Christine Lagarde, ECB president, last week compared the eurozone with a patient walking out of intensive care with the support of two crutches.
But with the eurozone lagging behind its main trading partners, the crucial question for the ECB is whether it is doing enough.
At its previous monetary policy meeting in March, the ECB decided to conduct bond purchases “at a significantly higher pace” under its €1.85tn pandemic emergency purchase programme (PEPP) to avoid an unwanted tightening of financing conditions.
Since then, adjusting for the Easter holidays, it has bought €19bn of bonds a week, compared with a weekly average of €15bn earlier in the year, according to Goldman Sachs.
Some economists say the ECB could step up further, particularly given the 0.13 percentage point rise in 10-year Italian yields in the past month.
However, Andrew Kenningham, chief European economist at Capital Economics, pointed out that the pick-up in Italian yields came despite the ECB’s higher bond purchases. “[The ECB’s] revealed preference is to buy around €15bn-€20bn per week under the PEPP and let bond prices adjust to market conditions,” he said. Martin Arnold
In another busy week for US corporate earnings, Netflix will be in the spotlight as investors wait to see if one of the companies that most benefited from consumers’ thirst for in-home entertainment during the pandemic has continued to draw in viewers this year despite an easing in lockdown restrictions.
The streaming group, which will publish its first-quarter earnings on Tuesday, added 8.5m paying customers in the three months to the end of December even as it raised prices — beating analysts’ forecast of 6m and bringing its overall subscriber tally to almost 204m subscribers.
Netflix is expected to have gained another 6.2m subscribers last quarter, according to a Refinitiv survey of analysts, down from an jump of 15.8m a year ago when shutdowns spread across the US.
Analysts cautioned, however, that last year’s subscriber surge would weigh on 2021 demand for streaming groups.
This week will also bring updates from US airlines, with investors parsing results from United, American, Southwest and Spirit for signs that travel demand is recovering.
The number of travellers passing through US airport security checkpoints remains below 2019 levels but has been steadily climbing in recent weeks to levels last recorded before coronavirus shutdowns early last year.
American Airlines has said it expects to report a first-quarter net loss of up to $1.3bn. But it forecast strong demand this summer, saying it would fly more than 90 per cent of its domestic seat capacity compared with 2019. Matthew Rocco
Investors have been focused on inflation this year as a key driver of financial markets. In the UK, year-on-year consumer price growth ticked down to 0.4 per cent in February from 0.7 per cent the month before. The March reading, released on Wednesday, could mark a point when price growth switches to an upward trajectory.
The key question for investors is where a move higher in inflation will stop and how central banks will respond. Price growth running above the Bank of England’s 2 per cent target in the long run could compel it to tighten monetary policy to cool the economy.
Economists expect the UK’s March CPI to rise to 0.8 per cent, according to a Bloomberg survey.
Analysts also predict that the gauge will continue to rise in coming months, likely exceeding the BoE’s target later this year. That, however, does not mean the central bank will blink.
“I think the bank is going to pretty much ignore inflation for the next year or two,” said Paul Dales, chief UK economist at Capital Economics.
Dales said the BoE would likely disregard higher growth figures due to the strong influence of technical factors, including rising energy and utility prices. Clothing had also proved to be a “wild card” over recent months as retailers increased their price tags in response to lockdown measures, he added.
But higher readings over the next several months could still make investors nervous about the prospect that higher inflation is here to stay. “The outlook for inflation now is more uncertain than it’s been for 10 years,” said Dales. Joshua Oliver