What to watch (1/2)

Central banks are the main game in town this week with the Fed, ECB and BOE headlining a week where we see a number of other G10/EM central banks meet. Omicron developments of course have huge potential to move markets, particularly any vaccine-related news (or indeed talk of further governmental actions to stem the spread).

• The FOMC is largely expected to speed up the pace of tapering at its meeting on Wednesday. Powell's testimony was seen as the turning point for markets. Many market participants and analysts now believe that the Fed wants to increase its optionality to increase rates at an earlier juncture given headline CPI is approaching 7% and core CPI almost at 5%. Ending QE earlier is seen as a step in this direction.
• The ECB's decision to be announced Thursday on the post-PEPP plan will be closely watched, but it is still uncertain what form the decision will take. Will there be a more permanent plan or a temporary rollover for another quarter or so until the severity and uncertainty from Omicron become clearer? Will there be any flexibility to deviate from the capital key in times of market angst under the successor plan? How much will asset purchases be tapered from March? All of these questions remain unresolved at present.