China data may put cat among global central bank doves

LONDON: 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 major commodities consumer and focus of much of the recent concern, releases trade data in the coming week that will be closely watched to gauge demand in the world's second-largest economy, while U.S. retail sales figures will give clues on the state of consumer confidence there.

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.

The U.S. Federal Reserve, meanwhile, is looking increasingly unsure about when it will next raise rates, and 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 January exports are expected to have dropped for the seventh month running, with factories still battling falling prices. But a forecast jump in bank lending may underscore Beijing's bid to put a floor under the slowing economy.

A raft of economic data in the next two weeks will be closely scrutinised for signs that the slowdown in the world's second-largest economy may have bottomed out.

Nevertheless, China's official economic growth rate is likely to keep slowing to 6.7 percent in 2016, according to China Merchants Securities' macroeconomic analysis team, the most accurate forecasters of the economy polled by Reuters last year.

Euro zone economic growth was probably a paltry 0.3 percent in the final quarter of 2015, data are likely to show on Feb. 12, matching the third quarter's pace and with inflation nowhere near the ECB's 2 percent target ceiling, expectations are high for more easing."The economy in the euro zone is not gathering momentum. For a long time we have been expecting the ECB to loosen its monetary policy again, presumably now in March," said Jorg Kramer at Commerzbank.

ECB President Mario Draghi signalled last month further policy easing could be coming within months, leading markets to price in a deposit rate cut in March.

While economists are pretty convinced the ECB will ease again next month they are less sure about how aggressive the U.S. Fed will be after it hiked interest rates for the first time in nearly a decade at the end of last year.