As US stocks finished lower last night
with the S&P closing down for the second day in succession Europe’s markets look similarly set to open on the back foot this morning as recent market exuberance gives way to a little more temperance
ahead of the release of the latest FOMC minutes from the October meeting as well as retail sales data for October.
While the start of this week has got off to a fairly slow start today’s events could well prompt a strong response if markets get something they hadn’t bargained for. This could come in the form of either a surprise in the latest FOMC minutes, or a particularly bad economic data item, in the guise of retail sales or an inflation number.
The main focus of attention today will be on the US and the Federal Reserve with the release of the latest FOMC minutes from October
. These minutes kept open the prospect of a taper by the end of 2013, and caught the market by surprise, because investors had been expecting a particularly dovish statement in light of the 16 day government shutdown.
In fact the statement made no mention of the shutdown at all so today’s minutes are likely to give us ideas as to whether or not the committee discussed other measures
to try and keep rates low, if and when tapering were to start.
A number of Fed policy makers have in recent days gone out of their way to play down market expectations of a taper this year arguing that there is no rush with Charles Evans
being the latest policymaker to do so, and even putting a time scale on it to 2015 and $1.5tn price tag.
This message was reinforced by the outgoing Fed Chairman Ben Bernanke
at a dinner in Washington last night when he stated that the Fed would maintain its easy monetary policy
for as long as was needed.
The only problem with that statement is that each FOMC voting member will have a different view of what that means, particularly in the New Year when the voting members change.
It may also be worth keeping an ear on what the Fed’s favourite mouth piece St. Louis Fed’s James Bullard has to say on monetary policy when he gives a speech in Chicago
, on the economy, just prior to the release of the minutes, given he has also gone on the record recently as saying he is in no rush to start tapering.
One key question now is how many members would still like to taper in December
and how many are now looking at the end of Q1. Another question is whether the members discussed adjusting any of the guidance thresholds lower,
particularly the unemployment rate, down from 6.5% to 6%, given the weakness in the participation rate, and worries about rising interest rates when tapering starts.
Today’s economic data is also likely to play a part in that with the latest retail sales data for October
not expected to rip up any trees, with a flat reading expected
to follow on from the 0.1% decline seen in September. A neutral reading seems optimistic given the disruption caused as a result of the government shutdown and the temporary loss of salaries to government employees as a result of that.
Consumer prices for October
are also expected to remain benign, coming in at 0%, and while these remain weak then the doves on the FOMC are not likely to remain concerned about letting up on the QE pump priming.
The housing market
is also expected to have suffered with existing home sales expected to have slid 2.7% in October.
In the UK
the latest Bank of England minutes
aren’t expected to garner any surprises as we got a lot of detail around the bank’s thoughts with last week’s inflation report, with respect to the banks forward guidance and the prospects of an earlier rise in interest rates. Nevertheless it would be prudent not to be complacent in the event that we get a slightly more hawkish tone from some on the committee.
– this week’s move above 1.3500 brings with it the risk of a move towards the 50 day MA and towards 1.3620. As long as we stay below 1.3620 then a move to 1.3000 remains possible in line with the bearish engulfing week at the end of October. Current support comes in at 1.3455 from the lows at 1.3300 post the ECB rate cut.
– the pound continues to look strong but remains contained within the broader channel of price action with support at the 1.5880/90 area and resistance at 1.6250/60. The current move beyond 1.6110, hasn’t really taken off but could well work its way back to resistance, while below we could see a drift back towards this week’s low at 1.5855.
A sustained break below 1.5900 has the potential to target a move towards 1.5750.
– continues to look weak but remains in broader range with support around the lows this month at 0.8320 and resistance at 0.8470.
While below the long term trend line resistance at 0.8540, from the August highs at 0.8770, the risk remains for a move below the 0.8320 level towards 0.8280, 50% retracement of the entire up move from the 2012 lows and the high this year.
– the US dollar appears to be finding some resistance near the September highs at 100.60, and with US long term yields remaining soft the risk remains for a move back towards 99.20.
Behind 100.60 we then have 103.75 which is the next obstacle to a move to 105.00.
If the US dollar breaks below the 99.20 level we could see a deeper fall towards 98.50.
Support remains just below the 200 day MA at 97.80 at 97.20 trend line support from the 25th Feb lows.
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