Weekly wrap: Will Bernanke sign off with a decision on tapering? – 17.12.2013
Source: Henderson Global Investors
Major stock indices finished the week generally lower as investors remained cautious ahead of the US Federal Reserve’s (Fed) timing of a reduction in its quantitative easing programme. A US budget deal cleared the House of Representatives with overwhelming support on Thursday evening. If it is approved by the upper chamber of Congress, it will be signed into law by President Barack Obama, who supports the measure. Meanwhile, all five US financial regulators approved the Volcker rule, which bans banks from using their own funds for trading activities. Banks will have until 21 July 2015 to comply with the rules. In US economic news, the Thomson Reuters/University of Michigan’s preliminary reading on consumer sentiment jumped to 82.5 for December, up from 75.1 in November. Retail sales for November added to signs of a strengthening economy while a labour market report showed the number of Americans filing new claims for unemployment benefits jumped, reversing the prior three weeks of declines.
In the UK, output in the construction industry rose by 2.2% in October, fuelled by a big increase in house building, according to the Office for National Statistics (ONS). The figure marks a sharp improvement from September, when construction output shrank by 0.5%.
Inflation in China slowed in November with the consumer price index rising 3% year-on-year, down from its 3.2% pace in October. A drop in food prices from a month earlier was the main source of downward pressure. Meanwhile, China's industrial output and retail sales rose in November. Factory output rose 10% from a year ago and retail sales were up 13.7%. This follows a stronger than expected jump in exports in November.
All eyes will be on Wednesday’s Fed December meeting and Chairman Bernanke’s last press conference as investors await the Fed’s decision on when it will start tapering its $85bn monthly injections into the economy. Today’s Markit Flash Purchasing Managers’ Indices (PMI) will provide some insight into how the year has ended for the US, eurozone and China. US labour costs, productivity data, industrial production and capacity utilisation are also all out today. Markit’s US Flash Services PMI is published on Wednesday along with building permits and housing starts data. On Thursday, initial claims and existing home sales data is released while an update on third quarter gross domestic product (GDP) growth is published on Friday.
In the UK this week, labour market data will be accompanied by updates to government borrowing, retail sales, inflation, services output and a new estimate of third quarter GDP data. In Europe, Germany’s ZEW sentiment indicators are out on Tuesday and IFO sentiment indicators on Wednesday. Wednesday also sees the publication of the minutes from the Bank of England’s latest Monetary Policy Committee meeting. On Thursday, UK retail sales are published while the final estimate of third quarter GDP is released on Friday.
In Asia, the Bank of Japan’s latest Tankan survey results were published on Monday and showed that business confidence soared to its highest level in six years. The Bank of Japan is not expected to add any further stimulus at its policy meeting on Friday. Meanwhile, in India, attention will be focused on the policy rate decision to be revealed on Wednesday.