If you’re hankering after “event risk”, look no further. Europe can offer top central bank meetings, front line economic data, a debt auction and more political risk than you can shake a stick at today.
This could be almost a perfect storm of a day after the Federal Reserve said its bond-buying would continue unabated for now and gave no new firm steer as to when it might begin rowing back, although its choice of adjective to describe the pace of growth – modest rather than the previous moderate – could be a hint that it is in less hurry to taper.
Now, it’s the European Central Bank’s turn. Given its forecast for recovery in the second half of the year has some evidence behind it, an interest rate cut is unlikely. Instead, for the second month running, Mario Draghi may have to focus primarily on the backwash from the Fed.
History shows that it’s dangerous to read too much into very marginal shifts in central bank language. The likelihood is still that the Fed will begin slowing its pace of money creation later this year. European stocks are expected to climb on the Fed’s “dovish” language and German Bund futures have jumped about half a point. But it will only take a strong U.S. jobs report on Friday to shift market expectations again.
As a result, the pressure will be on Draghi to convince that just because the Fed is on the move doesn’t mean the ECB is too. His stab at “forward guidance” last month was partially successful in calming markets but this is an ongoing process, not least because the ECB’s steer – that it expects rates to stay at record lows for an extended period – is vaguer than the Fed’s, which has attached any move to an unemployment target.