What is happening with rates? This week all the doubters and shouters in the pet shop will be out in force for the release of the February labour force data from the Bureau of Statistics on Thursday. If they are good (after January’s weakish effort), then it will be a case of “can’t be trusted”. If there’s another weakish report, then the calls will be “economy sluggish, weak, rate cut looms”. China’s trade and inflation data reports tomorrow and Thursday respectively would normally condition local reaction, but the bulls have a head of steam up here, in Japan and the rest of Asia, Europe and the US, where the economy seems to be in better shape than was thought a week ago (yep, that’s the “medium term” now in the debate). But the big puzzle will be this week’s meeting of the European Central Bank on Thursday night. Will it respond to the reappearance of deflation and drop its key deposit interest rate deeper into negative territory than the 0.3% now on offer, or will the ECB wait and see what happens in the next couple months because the economic data from a few economies is solid and unemployment continues to drop? Negative interest rates are “funny money” territory, but will the Bank of Japan’s mishandling of its introduction of negative rates on January 29 (which sparked a huge sell-off on markets around the world) force the ECB to think twice? Perhaps the ECB will increase its easing spending to compensate. — Glenn Dyer

Rate rise, er, looms? Shout it in lower case, as some American commentators and economists whispered after the surprisingly strong jobs report for February, where 242,000 new jobs were estimated, plus an extra 30,000 found for January and December — making it a 272,000-job month instead of the 190,000 or so expected by the market (the default estimate when all else fails). The jobless rate was steady on 4.9%, but wages dipped 0.1% to be up 2.2% in the year to February — still better than inflation, but down from the 2.5% rate in late 2015, which helped push the Fed into the first rate rise since 2006. Now, after the solid rise in new jobs, economists are saying, sotto voce, “rate rise looms”, with some nominating April, but the smart ones, “later in the year”. The Fed meets for two days next week. No one is expecting an increase, but don’t be surprised if one is signalled. — Glenn Dyer

Five more years of juggling. China’s latest economic plan, No. 13, and apparently one better than Russia’s, is the usual mixture of hope and command-and-control economic optimism — perhaps aimed at asserting the tighter control President Xi Jinping is exerting over the country. But it is predicated on slowing growth and continuing deficit spending by the central government, hopes of industry reform and restructuring (these are aspirations, given there has been a lot of talk in the last four years about the need for reform in old industries such as coal and steel, without very much happening). China’s National People’s Congress was told in Beijing on Saturday that, after growth slowed to 6.9% at the end of 2015, the government is now aiming for average economic growth at or above 6.5% a year for the next five years. Premier Li Keqiang said the government would target economic growth between 6.5% and 7% in 2016. (The IMF thinks China’s growth will slow to 6.3% this year).

The inflation target for this year is 3% for consumer prices — for the country’s producing segment, it is unstated, but the February data out this Thursday will confirm that producer prices remained deep in deflation for the 48th month in a row in February. The government says the budget deficit target is 3% (probably 3.5% or more) of GDP — more than US$300 billion, which, even in this much bigger economy, is a fair old whack of stimulus. Tens of billions of that will be spent on the cost of revamping old industries and sacking up to 2 million workers in the next few years, and billions more will be spent on restructuring the armed forces and cutting staffing numbers by 300,000. And if China is lucky and the plan is met with growth averaging 6.5% a year for the next five years, GDP will rise to just under US$14 trillion. On Saturday we get the monthly retail sales, production and investment for January and February (they are combined to try and mitigate the distortions caused by where the Lunar New Year falls. More of the sluggish growth and activity we have seen in the past year). — Glenn Dyer

Peter Fray

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