October 6, 2013 5:36 pm

Fed minutes set to throw spotlight on QE questions

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The future path of the US programme of quantitative easing will be in the spotlight again this week, with the release of last month’s Federal Reserve open markets committee meeting minutes.

Other than that, it may be a quiet week in the US if the government shutdown continues, as some data releases will be postponed. In particular, the crucial non-farm payrolls figures will not be published. Retail sales data from the Census Bureau may also be delayed.

The Federal Reserve minutes will definitely be released on Wednesday, as they have an independent budget. “Key issues to watch for include the committee’s debate about [quantitative easing] factors, potential changes to forward guidance on the Fed Funds rate and debate on the structural and cyclical factors affecting the unemployment rate,” says John Zhu, of HSBC.

The University of Michigan consumer sentiment index should also be published, on Friday. Recent polling suggests that consumer sentiment has softened as a result of the impasse in Washington, so a drop in the index is possible.

In Europe, the divergent prospects of France and Germany are likely to be highlighted by new trade and industry data.

“German and more general eurozone data has shown an unusual dichotomy between soft and hard data [in recent months],” says Rob Carnell of ING. “Continued optimism has not yet been matched by improving economic activity.”

Germany’s recovery so far has been driven by domestic demand, so its trade balance will be watched on Tuesday for signs that exports are picking up. Given recent positive business sentiment, improvement is expected in its industrial orders and production figures on Tuesday and Wednesday.

This would point towards a solid third-quarter GDP growth performance. Germany’s political parties have embarked on attempts to form a coalition; any news on this could move markets.

By contrast, figures for France are likely to have a note of gloom. Sentiment indicators have fallen recently as president François Hollande battles the country’s rising debt levels. Industrial production may drop on Thursday, and the trade balance on Tuesday may worsen.

The Bank of England will hold its monthly meeting this week. Further quantitative easing seems to be decisively off the table for the foreseeable future. “The bar for any more QE now looks to be very high,” says Howard Archer from IHS Global Insight. “It will probably only occur if the economy loses substantial momentum over the coming months, or if there is major financial turmoil and a sharp upward move in market interest rates when the US Federal Reserve finally starts to taper.”

With no change in interest rates expected either, the main question for BoE-watchers will be whether governor Mark Carney has shifted his forward guidance position at all. Markets will be watching for any sign of a change in Mr Carney’s expectations of the future unemployment rate trend.

The BoE’s credit conditions survey on Wednesday is expected to show continued improvement in both consumer and business lending, and an uptick is forecast in industrial and manufacturing figures also on Wednesday, as the economic mood in Britain keeps brightening.

The main economic releases in Japan will be the trade balance on Monday and consumer confidence on Thursday, both of which may show signs of improvement as the government’s reflationary efforts begin to take hold.

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