20.09.13 Friday Morning

The gaze of the financial world was squarely upon the Federal Reserve where policymakers were due to discuss paring unprecedented bond purchases known as quantitative easing. Significantly, Lawrence Summers withdrew from the race to be the next Federal Reserve chairman paving the way for Janet Yellen to take up the reigns. Investors are of the belief that Yellen may not scale back QE as aggressively as her rival Summers would.

After the Federal Reserve refused temptations to taper monthly bond purchases, U.S. headline indices hit fresh highs with the S&P 500 trading over 22 percent higher year-to-date. The FOMC also reiterated its stance on forward guidance with the Committee continuing to expect almost zero interest rates as long as the unemployment rate remains above 6.5% and medium-term inflation remains below 2.5%. The Fed slightly reduced the projections for GDP growth from 2.3%-2.6% to 2.0%-2.3% for 2013 and from 3.0%-3.5% to 2.9%-3.1% for 2014.

The Fed has made clear that the main factor preventing tapering is growth or rather a lack of faith in the current recovery. Investors responded by propelling U.S. stocks to record highs and driving down bond yields. Furthermore, Fed Chairman Ben Bernanke refused to commit to begin reducing the bond purchases this year, and instead went out of his way to stress the programme was "not on a pre-set course." In June he had said the Fed expected to cut back before year end.

Policymakers cited strains in the economy from tight fiscal policy and higher mortgage rates as it explained why it decided to maintain asset purchases at the current pace of $85 billion a month. Nevertheless, the Fed said the economy was still making progress despite tax hikes and budget cuts in Washington as a result of the so-called "sequester" implemented by Congress earlier this year.

Gold saw its biggest jump since June 2012 following the Fed’s decision, rallying 4.1 percent after Wednesday’s decision. This comes after Goldman issued a bearish note on gold predicting that the commodity could tumble below the $1,000 mark for the first time since October 2009. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt. However, the commodity is still down some 18 percent from January.

Whilst Putin suggested that the “primitive” methods used to carry out the chemical weapons attack on Syrian civilians pointed towards a rebel atrocity, U.S. Secretary of State John Kerry has made clear that a U.N. report would suggest otherwise, questioning the rebels capabilities of carrying out such an attack. Talks will be persistent until a solution that all see as fair is found.

We have the German elections this Sunday with Angela Merkel, according to the polls, remaining very popular amongst voters. Initial figures would suggest that this election is Merkel’s to lose with the German people trusting her leadership, backing her austerity-first response to Europe’s debt crisis and crediting her for economic gains.

The Merkel campaign has pointed to unemployment that fell to a two-decade low on her watch, progress toward a balanced budget and the euro’s advantages for Germany’s export-driven economy. If Merkel were to get re-elected, the near-term issues that would come to the forefront would be how to deal with struggling peripheral euro zone nations – along with a potential third Greek bailout – and also the possible breakdown in her 550 billion-euro energy overhaul.

Stock of the Week:

It's had its detractors but yesterday Ocado had its investors topping up their baskets with shares in the online grocer as it beat 400p for the first time. This comes after Ocado announced that gross sales had risen by 16%. The shares have been on an upward trajectory since it announced a partnership with supermarket Morrisons to launch online shopping earlier this year.

Next Week’s Notable Economic Data

 

Monday:

 

• CNY - HSBC Flash Manufacturing PMI @ 02:45
• EUR – French Flash Manufacturing Index @ 08:00
• EUR – German Flash Manufacturing PMI @ 08:30
• EUR – ECB President Draghi Speaking @ 14:00

Tuesday:

 

• EUR – German Ifo business Climate @ 09:00
• CAD – Core Retail Sales m/m @ 13:30
• USD – CB Consumer Confidence @ 15:00
• NZD – Trade Balance @ 23:45

Wednesday:

 

• USD – Core Durable Goods Orders m/m @ 13:30
• USD – New Homes Sales @ 15:00

Thursday:

 

• GBP – Current Account @ 09:30
• USD – Unemployment Claims @ 13:30
• USD – Pending Homes Sales m/m @ 15:00

 

Friday:

 

• EUR – ECB President Draghi Speaks @ 10:00

 

 Next Week’s Notable UK Earnings

Monday:

 

• Dairy Crest Group 2013 Half Year Trading Update

 

Tuesday:

 

• Close Bros Group 2013 Preliminary Earnings Release
• Euromoney Institutional Investor Pre-Close Trading Update

 

Thursday:

 

• TUI Travel Pre-Close Trading Update
• Mitchells & Butlers Pre-Close Trading Update
• Thomas Cook Pre-Close Trading Update