The Federal Reserve are Expected to Raise Interest Rates
Tumultuous week for the equity market is coming to an end, during which we have seen the biggest firework of this year- the Fed taking it easy on the tapering paddle. We will wrap up this week with another fairly full day of economic data. The equity market across the globe has made its all time high on the back of the optimism, that the recovery and confidence in the US market has returned, and this why, the Fed were confident enough to start wrapping up their ultra loose monetary policy. But, if there is any strength in this recovery, and if the confidence has actually returned in the market, we do not know, and only time will tell the answer for this question. However, the economic data certainly warrants for tapering and the Fed has taken the bait based on this data. If we look historically, we will see various different efforts by the Federal Reserve bank to bring the confidence back in the market, and the interesting thing is that, gains made during these ultra loose monetary policy were whipped out, almost every time they started to wrap up their tents. In early 2010, they started to wind down their first quantitative program, then in spring 2011 they ended their Q2 and finally in 2012 operation twist ended. All these quantitative operations have one thing in common, the equity market completely wipes out their gains which were made during these durations.
The economic data released in the US yesterday-Weekly Jobless Claims and New Homes Sales, all fell short of expectation, and this is what we are not recently used to, but the markets certainly shrug off these concerns, and finished the day mostly on a positive note by holding on most of their gains, which were made on the day of tapering.
These positive gains have filtered through once again to the European markets which are trading higher this morning and this could be the first time in the past seven weeks for the FTSE 100, which could close in a positive territory.
Most of the economic data which is due today may not have much of an importance and there may not be anything new which we already do not know. To kick off, the UK’s final GDP number for Q3 could remain unchanged with the final reading of 0.8% however, there is a possibility that we may get an upward revision of the business investment number for the UK economy. This is one part of the economy which has been lagging so far with a very flaky recovery, and going forward we do need to see a much stronger improvement. The current account’s data will also be released at 09:30 GMT and the forecast is for -13.8B pounds while, the public finance data could show a big increase to 13.4B pound whereas, the previous reading was 6.4B pounds.
Back in Europe, the Portuguese parliament court refused government proposal to cut the public sector pension by 10%, which was a part of government spending cuts announced during the budget. Now, the government is left in a ring alone, to fight to find the 388 million euro gap, so that it does not harm its bailout for 2014.
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