Japan and ECB rate decisions, Brexit debate continues
The FT's Josh de la Mare previews the big stories in the week ahead, including interest rate decisions of the Bank of Japan and ECB, the latest in the Brexit debate, Rolls-Royce under spotlight over efficiency savings and life insurers grapple with changes in life expectancy.
Studio filmed by Rod Fitzgerald and Petros Gioumpasis. Produced by Josh de la Mare.
The Bank of Japan is all but certain to keep interest rates on hold this Friday, at the last meeting of Governor Haruhiko Kuroda in his first five-year term. Japan has had its longest run of sustained economic growth since 1989, but Mr Kuroda may note the recent strength of the yen, which is keeping exports and inflation weak.
The Bank of Japan policy meetings that concludes this Friday will be last of Governor Haruhiko Kuroda's first five-year term. The focus for now is on confirmation hearings in parliament for both the governor and two new deputies, which means any change in policy this Friday is highly unlikely. With the economy ticking along nicely, but inflation still subdued, analysts are pushing out their forecasts for when the BOJ might tighten to late 2018 or early next year.
In Frankfurt, the European Central Bank will be reviewing monetary policy and is expected to continue with quantitative easing until the end of this year, although more hawkish members of the council are pushing to end quantitative easing in the autumn.
Now, the debate is likely to focus on what happens to the easing bias for the 2.5 trillion euro quantitative easing programme. What the easing bias means is that at present the European Central Bank stands ready to boost QE should growth disappoint or should market turmoil erupt. Now, removing it, given how strong the recovery is, may not sound like a big deal. But in fact, it is. And the reason why is that removing it will constitute a big step towards ending QE for good.
In the UK, Brexit negotiations will stay on the boil. Theresa May, Britain's prime minister, speaks to the House of Commons on Monday. The EU's chief Brexit negotiator Michel Barnier meets Northern Ireland's two leading political parties, the DUP and Sinn Fein, to discuss the Irish border. And Britain's finance Minister Philip Hammond sets out his plan to secure a Brexit deal with the EU that includes not just goods, but services, which make up nearly 80% of UK output.
Financial services and services in general has to be at part of our future relationship with the European Union. It's a very large part of our trade pattern with the EU. Real economy players in the European Union depend for their competitiveness on their access to UK financial services.
Britain's flagship engineering company Rolls-Royce has been working hard to recover from recent profit warnings. And it looks to be stabilising under chief executive Warren East. At this week's annual results, investors will be focused on the core aerospace business of Rolls-Royce, and will be asking whether the notoriously bureaucratic company is on track to meet its target for 1 billion poundsin efficiency savings by 2020.
And Warren has from time to time expressed frustration about his plan to introduce pace and simplicity into the business. The big question will be how far down the road Rolls-Royce is in achieving its target for one billion in efficiency savings, and in particular, whether problems on two engines, the Trent 1000 and Trent 900 are impacting that target tool The other important thing is that new accounting standards are coming into force. That could dramatically alter the profits and revenues that are reported by the company, which brings us on to the final point that will really occupy investor's mind, which is what is the guidance for 2018?
And UK life insurers take centre stage this week as well with results from Legal & General and Aviva. And the comments on life expectancy could be revealing. For years, life expectancy has been rising in the UK, as smoking rates have fallen and medical treatments improved. But that trend has changed recently. It seems that life expectancy is still rising, but not nearly as quickly as expected in 2012. And this change could have big implications for life insurers.
So the big thing to watch will be what the life insurance companies have to say about longevity. This makes a huge difference for them. They have big reserves against the amount of time that they expect their customers to live. But the latest data shows that the improvement in life expectancy has slowed down a lot in recent years. So people aren't living quite as long as people used to think they might be.
This can create a big impact for the insurers. Last week, Standard Life Aberdeen released 91 million pounds of reserves that had previously held against longevity. It will be interesting to see if Legal & General and Aviva do the same thing.