Daily Market Report 18/09/2013

In any normal week, Tuesday’s inflation data from the UK and the US would typically have had more of an impact on the markets but with the Federal Reserve potentially announcing a reduction in quantitative easing on Wednesday afternoon, this news was glossed over pretty quickly. Even in the light of German elections on the weekend, a better expected result from the German ZEW survey had little impact on the value of the euro.

The fall in inflation for the UK came in line with expectations, 2.8% down to 2.7%. Inflation within the US saw a slightly larger drop from 2.0% to 1.5% but again, impact on the markets was rather muted.

Ever since Bernanke mentioned a reduction of the QE in June, the markets have been trying to assess when this will happen. As Bernanke is leaving his post in January, the majority of analysts believe a reduction of around US$10-15bn (currently US$85bn monthly) will occur. Investors will also be looking for any hints as to how quickly the taper will continue into the future. The amount of movement we have seen on the value of the dollar and gold in the last two weeks would suggest that an announcement from the Fed is likely.

The Bank of England is also due to publish the minutes from the most recent MPC meeting at the start of the month. The pound rallied after the decision at the start of the month however since the meeting, the unemployment rate in the UK has dropped. This is more prevalent than usual as this data underpins Carney’s forward guidance. It is anticipated that the minutes will not have a large impact this month as the Bank of England are likely to remain vigilant in the coming months in light of the steadily improving economy.

Key Announcements:

9.30am – GBP – Bank of England Minutes.

13.30pm – USD – Building Permits (Aug): Expected to fall to 950,000.

13.30pm – USD – Housing Starts (Aug): Expected to improve to 917,000.

19.00pm – USD – Fed Interest Rate Decision: Expected to remain at 0.25%.

19.30pm – USD – Fed’s Monetary Policy Decision.