The release of the latest FOMC minutes proved that last month’s meeting was as every bit as feisty as the markets thought it would be, given some of the strong opinions and pronouncements from various Fed members since the meeting in question.
Members were divided as to whether or not requirements for a taper were in place, or had been met, while there was an overarching discussion about the risks of a debt ceiling impasse, as well as rising interest rates.
In the end the decision to hold was a close call at the time
, however given how current events have played out and the fact we are now in day 10 of the US government shutdown, any decision to taper is now likely to be further away
than it was just over two weeks ago.
This is even more likely to be the case after last night’s nomination of Janet Yellen as Fed chief
to replace Ben Bernanke by President Obama.
In her acceptance speech she pledged to promote maximum employment and stable prices,
in that order, which if you were looking for clues as to her priorities would seem to suggest that she would probably favour a more relaxed monetary policy for longer. This would appear to suggest that any prospect of a taper has been kicked into the long grass for now.
US markets certainly seemed to read it that way, closing marginally higher on the day both the Dow and S&P500 touched fresh multi-week lows.
Even allowing for this slightly positive finish concerns about the ongoing deadlock on Capitol Hill remain close to hand
, though there does appear to be some optimism that discussions are still ongoing with the President due to meet 20 senior Republicans this evening in an attempt to break the deadlock.
There has been some talk of a short term debt cap bill
with neither side ruling this option out in order to buy more time to come to a more permanent agreement.
Away from the US we have the latest Bank of England meeting
which is expected to keep monetary policy unchanged, after this weeks upgrade by the IMF to the UK’s growth forecasts for 2013 and 2014.
As if to highlight the fact that the UK economy remains fairly fragile
we saw yesterday that August manufacturing and industrial production data showed a sharp slump in excess of 1% on both measures.
These numbers flew in the face of the really positive business survey results and PMI numbers that we have seen from Markit in recent months, and raise serious questions as to the accuracy of the ONS numbers, given the regularity they tend to get revised.
In Europe, Spanish and Italian markets in particular appear to be shrugging off
concerns about the problems in the US, continuing to outperform their stronger European peers hitting multi-month highs as both countries got away new bond sales yesterday.
Spain managed to sell €4bn of 30 year paper, Italy a seven year bond sale, while the new ESM managed to raise its first €7bn of five year paper.
All of this in spite of the fact that economic data in both countries, continues to give cause for concern, due to high rates on unemployment.
Italian and French industrial production data for August due out this morning is expected to point in the right direction though, with expectations of a rise of 0.6% in both cases.
– it is taking awhile to unfold but we do appear to be slowly heading towards key support at the 1.3450/60 area. Last week’s bearish daily candle does appear to be weighing down on the price action. Only above the 1.3710 level would argue for a move towards the 1.4000 level. A break below the 1.3450/60 area which acted as support last week would signal a move towards the 1.3320/30 level.
– yesterday’s break below 1.5980 has seen the pound head towards long term trend line support now at 1.5915 from the 1.4815 lows. A break through this three month trend line opens up the potential for further losses towards 1.5700, 38.2% retracement of the 1.4815/1.6260 up move. To stabilise we need to see a move back through 1.6020, to retarget the 1.6100 area.
– yesterday’s break above the down trend line resistance at 0.8470 from the 0.8760 highs now targets the 0.8500 area and the 200 day MA at 0.8521. Given this unexpected break higher the euro needs to hold above 0.8420 to stabilize and signal a move higher. A move back below the 0.8420 area retargets the 0.8280 level.
– the US dollar continues to hold above the 200 day MA at 96.79 having broken below trend line support at 97.00 from the February lows at 91.05. A break of 96.60/70 suggests the potential for further weakness towards the 94.00 area. We need to see a move above trend line resistance at 97.90 from the highs in September at 100.60 to stabilize and retarget the 100.00 area.
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