Marketmind: Breathe in

A look at the day ahead in European and global markets from Tom Westbrook

Markets are holding their breath for a week where central banks may start to take divergent paths.

Chinese markets have returned from the Lunar New Year break with a bit of a whimper rather than a bang [.SS] and the wind filling the sails of a wider positive mood has backed off while rate decisions in the U.S., Europe and the UK beckon.

Right now, investors’ glasses remain half full, with traders pricing in a 25 basis point hike from the Federal Reserve and hoping to hear talk of a peak in rates from Jerome Powell.

Wall Street’s “fear index” – the VIX volatility index – on Friday fell below 18.0 for the first time in over a year, and perhaps a little under the radar, U.S. bond market volatility is now its lowest since last June.

But cagey trade on Monday illuminates the nerves. Tech earnings loom as a mood test in the United States this week.

The European Central Bank, appears to be eying a 50 bp hike, too, which is helping keep the euro near nine-month highs, while the Bank of England is also expected to go 50 bps.

In Asia, markets slipped slightly, U.S. futures fell 0.4% and currency trade was eerily calm.

The Nikkei newspaper reported Renault was to lower its share holding in Nissan to 15%, while the latter would invest in Renault’s EV business.

Shares in India’s Adani Enterprises climbed 6% on Monday, but several other Adani group companies plunged for the third straight day as the group fends off criticism from a U.S. short-seller. Things have not gone well for investors in other firms Hindenburg has targeted.

Key developments that could influence markets on Monday:

– Germany GDP (Q4)

– Euro zone sentiment indicators (January)

(Reporting by Tom Westbrook; Editing by Kim Coghill)