Business

Scrutiny of US data releases to persist

LAST week's surprise decision by the US central bank not to announce a commencement of a tapering of its quantitative easing programme, is likely to continue to impact upon the financial markets this week. The US central bank stated that it would "await more evidence that [economic] progress will be sustained" before tapering. This means that a high level of scrutiny of US data releases is set to persist over the coming months, as the markets look for further signs that the US economic recovery is being sustained.

Meanwhile, the UK central bank also dominated the headlines last week after the minutes from the most recent meeting of the Monetary Policy Committee (MPC) suggested that the committee is happy with its policy stance. Ahead of the meeting, there was quite a bit of speculation that indicated that some members might have been in favour of yet more policy stimulus. However, the minutes revealed that the vote to leave its quantitative easing programme on hold was unanimous.

The door has been left open to additional quantitative easing as the minutes highlighted that, if the UK economic recovery falters, the case for more asset purchases will be stronger. However, additional quantitative easing before the end of the year is beginning to look much less likely. The UK economic releases from last week were a bit of a mixed bag. A disappointing retail sales report for August was released alongside a hugely positive UK CBI Industrial Trends Survey for September. The CBI report indicates that the recovery in the manufacturing sector is continuing to flourish as the survey's main total orders balance is at its highest level since August 2007. Looking to the week ahead, the UK economic calendar is relatively light, with the only releases of note coming in the form of tomorrow's CBI survey (expected to edge lower) and Friday's release of the Gfk consumer confidence (forecast for another slight increase). Meanwhile, no change is anticipated from the final reading of GDP for the second quarter, which would confirm the economy grew by 0.7 per cent between April and June.

Elsewhere, weekend developments in terms of the German federal election results had little market impact. Chancellor Merkel's party performed strongly but were left just short of an overall majority. She must now seek a new coalition partner after her outgoing partners, the FDP, failed to win any seats. Merkel's strong support has been viewed as a clear vindication of her domestic and international policy stance and no major policy changes are expected in the coming months.