Take Five: Hawks hover, doves in danger

(Reuters) – Hot on the heels of the Federal Reserve, British, euro area and Australian central banks are lining up to meet next week.

The Bank of England is tipped to lift rates for the second time in less than two months. And as investors try to guess just how aggressive the Fed will get in its inflation fight, Friday’s U.S. jobs data will hog the spotlight.

Here’s your week-ahead in markets from Ira Iosebashvili @IraIosebashvili in New York, Kevin Buckland in Tokyo, John O’Donnell in Frankfurt, Tommy Wilkes and Dhara Ranasinghe @DharaRanasinghe in London.

1/ RUNNING HOT

The Federal Reserve is clearly out to tame inflation and reckons a “historically tight” labour market gives it plenty of room to raise rates without hurting jobs growth.

January jobs data out Friday will likely confirm that view. Economists polled by Reuters forecast the U.S. economy created 238,000 new jobs versus 199,000 in December when employment rose less than expected due to worker shortages.

Proof of a tighter jobs market and wage gains may fuel further bets on how aggressive the Fed will be – markets now anticipate roughly five quarter-point rate hikes by year-end.

Earnings season meanwhile rolls on with Google parent Alphabet Inc’s and Amazon.com reporting on Feb. 1 and Feb. 3 respectively. But with rate-hike jitters gripping Wall Street, earnings may play second fiddle to the jobs data and Fed speak.

2/ TAKE A HIKE

At Thursday’s Bank of England meeting, expect interest rates to rise to 0.5% from 0.25% https://www.reuters.com/world/uk/bank-england-track-second-rate-rise-under-two-months-2022-01-24, to curb inflation running at its highest in almost 30 years.

In December, the BoE became the world’s first major central bank to tighten policy and markets anticipate four 25 basis points rises by end-2022. Now investors are seeking guidance on how fast the bank expects to proceed.

The big question – one many central banks are grappling with – is whether a series of rate hikes now can curb inflation before price pressures trigger higher wage demands, and feed into generally higher price pressures

Watch out for comments from Governor Andrew Bailey about the strength of the labour market, wage growth, and his take on how fast inflationary pressures are building beyond supply chain disruptions and spiking energy prices.

GRAPHIC: UK inflation, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoaooopx/uk%20inflation%20chart.PNG 3/ DIVIDED

The same contentious topic – inflation – is dividing European Central Bank officials.

Euro area inflation is at a record high 5% and January data, released Wednesday, could provide the hawks with fresh ammunition to press for a policy shift.

Comments from ECB President Christine Lagarde suggest inflation will drop back below its 2% target this year as pressures from high energy prices and supply bottlenecks ease.

She may push back against market pricing for rate rises this year, which is out of sync with ECB messaging. The spillover from U.S. rate-hike bets is a potential headache for officials keen to avoid an unwanted tightening of monetary conditions.

So, Thursday’s meeting could prove lively even if no immediate action is expected – the ECB has already outlined plans to wrap up its PEPP stimulus scheme. GRAPHIC: When will euro zone inflation peak?, https://fingfx.thomsonreuters.com/gfx/mkt/myvmnjmkkpr/ECBFEB1.PNG

4/ DOVES, HIDE!

    As rate-hiking campaigns gather pace in other big economies, central bank doves are becoming an endangered species down under.

The Reserve Bank of Australia meets Tuesday against the backdrop of the hottest consumer inflation since 2014 and strongest labour market since 2008, piling pressure on RBA Governor Philip Lowe to take action.

Lowe has insisted a 2022 rate rise is unlikely, but economists are split on whether the RBA will capitulate. Traders, though, have long wagered Lowe is behind the inflation curve, and are pricing a rate hike in May, followed by at least three more by year-end.

5/ UGLY DUCKLINGS SHINE

Europe’s banks, the ugly ducklings of international finance, have long been upstaged by their successful U.S. rivals, who trump them on profits and valuation.

Now they are trying to catch up In the coming days, more of those banks will set out their stall with results for 2021.

The long-feared wave of unpaid debt has largely been banished by Europe’s governments, who have borrowed ever more to bail out the economy and, indirectly, their banks.

Now, with the prospect of gradually rising interest rates, most European banks, barring scandal-stricken Credit Suisse, https://www.reuters.com/business/finance/credit-suisse-flags-500-mln-swiss-franc-legal-hit-q4-2022-01-25 are looking to put their best foot forward.

(Compiled by Dhara Ranasinghe, editing by Mark Heinrich)