Monetary policy

Eurobourses are overshadowed by the grey clouds of monetary policy this week. First, the first ever by the European Central Bank, then the Bundesbank. and the Banque de France, and, obliquely, the US Federal Reserve Board. The good news is that they are fairly light clouds, and should disperse as the week progresses.

European Central Bank

The European Union's fledgling central bank has no power yet, but the financial markets are waiting to pounce on the words of the eleven members for an indication of how they are going to perform when they come to power in January. After all, they have a huge task in matching figures; reconciling monetary policy within significantly different growth rates across member states, from France's slow-slow recovery to the speedier rate of development next door in Spain; details due out on these too.

The Fed

Fed: And the US Fed? Watch the markets slump across the Atlantic if Fed chairman Alan Greenspan tells Congress that job creation and fast growth threaten inflation in the US. Everyone knows there are no inflation signs ... yet.

Italian bonds

Still, the threat is enough to keep bond markets subdued. Italian bonds got an early boost from a cut in bank reserve requirements to bring them closer to the European standard. This increases liquidity which in turn improves prospects for a further cut in discount rate. Italy has gained more than most from the move towards interest rate harmonisation within EMU.

Bank for International Settlements