Today is the start of the G20 summit in Pittsburgh. Yesterday The Bank of England’s Monetary Policy Committee voted unanimously to keep policy unchanged in September, but Governor Mervyn King and David Miles still felt a future expansion of bond buying might be desirable.
Minutes of the meeting released Wednesday showed no mention of any discussion of lowering the central bank’s deposit rate - a step which King recently said might be an option to enhance its GBP175 billion quantitative easing program. MPC members noted that downside risks to economic activity had decreased in the near-term, and raised the possibility that a recovery in asset prices and confidence could spark a “virtuous upward spiral for the economy.”
They said consumer price inflation was likely to be stronger in the near-term than expected and there was a lower probability of it falling below 1% in coming months. But they highlighted the large degree of spare capacity in the economy, which was unlikely to start shrinking, even if gross domestic product grew in the third quarter.
They also warned of the risk of “false dawns,” despite some “promising indications” from asset markets. “For those members who had preferred a larger stimulus at the August meeting, a larger asset-purchase program could still be justified,” the minutes said.
“But in the absence of significant news about the medium term, the case for adjusting the program now was
outweighed by the benefits of following through with the program of asset purchases announced in August.”
In the U.S, the initial read on the Federal Reserve statement was positive. Policy makers said economic activity has “picked up” an improvement from the “levelling out” language from its last statement, and conditions in the financial markets have improved. They also said housing activity has increased and household spending is stabilizing.
But the Fed also said that it was slowing its purchases of mortgage debt in order to extend the program through the end of March and smooth the transition in the markets, a statement that may have rattled some cages in the market. Investors are worried about whether the economy will survive without the Fed support and realize that moment of truth is drawing near.
Tomorrow economic data will see from the U.K details of Total Business Investment 9 forecast -10.4% QoQ, and - 18.4% YoY. From the U.S data released include durable-goods orders (forecast 0.5%); durable goods ex
transportation (forecast 1%) consumer sentiment (forecast 70.5); new-home sales August (forecast 441k and
1.9%MoM).
The UK market and the European markets have opened down around 1%. U.S futures markets are pointing to a negative start when their markets resume trading this afternoon. Futures currently forecast the Dow to open down around 47 points, the Nasdaq and S&P to open down around 6 points.
Please note there will be no report tomorrow, however the daily report will recommence this Monday the 28th October.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia: GaveKal:
Please note this report provides a guide to some of the relevant areas that individual investors should consider
discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.
