FOMC Rate Decision to Guide Sentiment Today; Canadian CPI Seen Rising to 2.9%

By 21 Sep 2011 0 comments

Market attention will shift from the Eurozone to the FOMC policy meeting today as the Fed rate decision and accompanying statement will be released.  There is a certain amount of dissent amongst the FOMC board members, so the possibility exists for some surprises in the Fed’s final statement.  Most analysts side with the argument that the Fed will pursue no new accommodation measures and instead choose to remain “data-dependent” given the Eurozone debt crisis and the possibility that any new strategies could bring high levels of volatility to financial markets.

In Europe, the Greek Finance Minister made comments suggesting that the next tranche of bailout funds will be paid out and that an agreement with the Troika can be reached.  In England, the BoE minutes from the previous meeting will be released today and the possibility for a growing consensus could be seen in terms of adding additional QE stimulus to the economy.  The EUR/USD remains at its range lows of 1.3740-1.3590 while the USD/JPY also trades heavy at 76.40-76.70.

The IMF has also been making headlines these past few days arguing that since global growth is seen slowing for the rest of the year, the ECB should lower interest rates as a means for countering the regions debt problems.  The IMF forecast for global growth is now at 4% (versus the previous forecast of 4.3%).

The effects of Standard and Poor’s downgrading of Italian debt (by one level from A+ to A) has had a relatively muted effect on markets as many argue that the downgrade has only come from one of the major ratings agencies and is not yet reflective of an analyst consensus.

Macro data showed that the German ZEW missed estimates, with the current situation index coming in at +43.6 (+45 was expected) but the economic sentiment figure came in slightly better at -43.3 (against estimates of -45).  These are the lowest levels we have seen in the ZEW survey since 2008, so it is going to take some time before the market starts to view any increases in a favorable light.

In Australia, the Leading Index was slightly positive at 0.5% for the monthly figure and 3.1% for the yearly figure.  In New Zealand, the second quarter current account deficit dropped to 920 million New Zealand Dollars.  Markets were relatively unaffected by the data, however, as sentiment and headlines continue to be the main drivers.  Additional macro data today will be seen with the Canadian CPI, with markets looking for a rise in inflationary pressures to 2.9%.

In Norway, the central bank (Norges Bank) will hold its policy meeting today, with markets expecting rates to be held steady at 2.25%.  External uncertainties are likely to be the main reason for the bank’s neutral bias but there could be some additional rhetoric relating to the value of the Norwegian currency, which has recently seen an increase in safe haven buying activity.

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