Will central banks walk the market talk?

Tonight looms as the start of yet another critical few days for the global economy and financial markets, with the scheduled release of key economic data and a round of central bank meetings.

In the US data on housing prices, consumer sentiment, manufacturing, employment and payrolls will be released over the next few days, while in Europe and Asia a strong of purchasing managers' indices will be issued, along with economic sentiment survey results in Europe.

More particularly, on Wednesday the Federal Reserve Board meets and on Thursday the Bank of England and the European Central Bank hold their meetings.

There is a lot of talk in the US – some of it from Fed officials – about another round of quantitative easing and Ben Bernanke has made it clear that the Fed will move again if it becomes evident that the US economy has slowed again, which it appears to be doing.

Tonight's data on incomes, consumer sentiment, the Chicago PMI and house prices will inform the Fed's meeting. Opinion is divided, however, on whether QE3 would have any more of a lasting impact than its predecessors.

The more modest alternative to QE3 would be for the Fed to extend the window in which it has said it doesn't expect to raise official rates, which is currently open until the end of 2014.

In Europe, the ECB's Mario Draghi's promise last week to do "whatever it takes" to preserve the euro – interpreted as large-scale buying of Spanish and Italian government bonds by the European bailout fund and the ECB – was momentarily reassuring, despite some kickbacks from northern European government officials.

If there is no action out of this week's ECB meeting, however, the cost of Italian and Spanish government borrowings – pushed below the perceived danger zone of 7 per cent – will soar again. There is a massive expectation that Draghi will follow up last week's rhetoric with some real action.

Whether ECB intervention in the markets for the eurozone's most vulnerable members will be effective in any enduring way, of course, is another issue.

To date the European response to its existential crisis has been purely to try to buy time and to attempt to muddle through. Some action, however, whether or not it addresses the fundamental issues within the eurozone, has to be better than none.

If the ECB doesn't announce a formal bond-purchasing program after its meeting, the potential for the crisis in Europe to reach another dangerous flashpoint will be acute.

There has already been a preview of China's PMI, which will be released tomorrow, with HSBC releasing its "flash PMI" reading last week. Its index was at a five-month high and, while it showed China's economy was still contracting, indicated that the rate of contraction had slowed.

If the HSBC survey is confirmed by the official PMI, it would suggest that the various and intensifying actions by the Chinese authorities to stabilise their economy (which include cuts to interest rates, lowering of bank reserve ratios and stimuli for infrastructure spending and investment) are starting to have an impact.

The success of those authorities in engineering a soft landing for China's economy and putting a floor of around 7.5 per cent to 8 per cent under its GDP growth has obvious implications for the Australian resource sector.

In the past it would also have had very direct implications for the Australian dollar, but it appears to have (momentarily?) de-linked from commodity prices, perhaps because of the prospect of more quantitative easing in the US and/or buying by foreign central banks seeking to diversify their reserves.

Together with a spate of domestic statistics (new home sales, private credit, building approvals and balance of payments) due this week, the Reserve Bank will have a raft of data to sift through at next week's board meeting.

There is no real expectation that the RBA will tinker further with official rates for some months unless another financial crisis does erupt. There will be a better sense of the probability of that occurring, or not, by the end of this week.