US economic data, Carney’s polices , ECB’s Whatever it takes in focus

Investor’s making a peace with Tapering

The results of Beige book which have been well received by the stock market has pushed the indices in a positive territory last night in the US. It seems that investors are coming to some sort of terms with the tapering idea and have accepted the fact that they can still buy the stock with a hope that their investments will have some sort of fruit on them. There is no doubt that the US economy has shown a growth from ‘modest to moderate’ pace, which has not only been reflected in the form of increase in the services and manufacturing activities, but also soaring consumer spending across the country.

Increasing oil prices could impact the incoming US economic data

The broader picture of the US market will be painted later on today when the economic data will start firing from its all cylinders of cannon. The ADP Non Farm employment change & Unemployment claims are due at 12:15 and 12:30 GMT respectively, and the forecast is the for 175K and 332K respectively.

The ISM non manufacturing PMI data is also due at 14:00 GMT and I would say that the recent increase in gas prices could have impacted the personal consumption of services which increased nearly 1.8% during the second quarter of this year. Moreover, an increase in the tax could also impact the final reading.

Source: Bloomberg and Bloomberg Brief

The BOJ said recovery is strong but Nikkei did not reflect that tone

The positive optimism from the US markets was filtered into the Asian markets today which also closed higher and gained further fuel when the bank of Japan declared their economic recovery. The bank formally proclaimed that their policies are working and the world’s third biggest economy of the world is on its path of a strong recovery. This certainly means that the Bank may not be initiating any further stimulating policies until the tax hikes takes place in April. The language in their meeting had the strongest tone since March 2008, but the effects of this tone was not reflected in the Nikkei index which closed with a minor gain of 0.08%

There may not be any firecracker in BOE’s Bank Rate

The FTSE 100 is trading higher during the early hours of trading. However, the volume is thin in the market as we are not seeing any bigger trades from investors ahead of the Bank of England’s meeting. I am not expecting any surprise or any kind of firework which could color up the sky in this meeting, as the UK’s economy is already building up the steam. You may think that Mr Carney has inherited a good fortune however, he also has inherited tough challenges, as the committee has pledged to keep the interest rate at 0.5% which presents a clear problem when it comes to sustain the inflationary pressure.

Given that the committee has given its forward guidance on one hand, and hat-trick of data beats on PMI’s this week on the other hand, it seems that the unemployment threshold level set by the committee may be reached before their expectation, and if such scenario does take place, this will certainly bring the policy committee member back to the square one and it could require to rearrange their forward guidance again.

‘What ever it takes’ message may continue

Mr Mario Draghi may play the same drum once again today so that that the market gets the sound which it received back in August. There is no doubt that the biggest economy of the Europe- Germany is showing a strong growth rate with a strong possibility of the spill over effects, but the peripheral countries are still not strong enough still to make them stand on their own feet yet, which leaves Draghi to keep believing the market that the ECB will certainly still stand by their phrase of ‘Whatever it takes’. I would say that the main challenge for the ECB is the forward guidance because we do certainly have some growth in the ECB but it’s the ECB pledge to keep the interest rate down for the extended period of time which could be challenging.

Currency

The JPY is trending up against the dollar while the EUR,GBP and AUD are trending down against the dollar on an intra day basis.