World Week Ahead: Finally, the Fed meets

Monday 1st November 2010

It seems like it’s been months and yet this week investors will find out how much the US central bank will target for future purchases of Treasuries.

Speculation has put the monthly target at between US$80 billion and US$100 billion with an open-ended pledge to do what is necessary to keep the world’s biggest recovery moving forward.

Thrown into the mix this week are the midterm elections, in which the Democrats are expected to lose their hold on the House of Representatives, forcing President Obama to shift his legislative focus to the centre.

The elections come first, on Tuesday. And the Fed’s statement will be released on Wednesday afternoon Washington time.

The Fed last week asked bond dealers and investors for projections of central bank asset purchases over the next six months as it seeks to gauge the possible impact of new efforts to spur growth.

Chances that Republicans will win control of the US House climbed to a record 93.9% on Friday, according to bets placed on Intrade, a Dublin-based online prediction market. however, the probability that the Democrats will retain the leadership of the Senate was about 55%, Intrade data show.

If the elections and the Fed weren’t enough, at the end of the week investors will get a fresh look at the US jobs market.

The federal government's non-farm payrolls report is due on Friday with economists polled by Reuters forecasting a gain of 60,000 jobs in October. In September, the economy shed 95,000 jobs. The unemployment rate, however, is seen holding steady at 9.6%.

"It will probably be a very volatile and very active market because there are a lot of moving parts," John Praveen, chief investment strategist of Prudential, told Reuters.

Central bankers in Japan, the UK and the euro zone are also holding policy meetings this week.
The Bank of Japan has moved its policy meeting forward to the end of the week, right after the Fed's meeting. Investors suspect the Japanese central bank - whose board members will meet on Thursday and Friday - may boost its bond purchases in line with the Fed.

For several months, the Bank of Japan has been trying to ease the appreciation of the yen against the greenback, and clearly, it’s keen to continue that effort.

On Friday, the US currency fell in late afternoon trading, down 0.6% at 80.42 yen.

October represented another good month for equities and as a sign of how optimistic investors were, it was the busiest month for US initial public offerings in almost three years.

Hong Kong-based greenhouse vegetable producer Le Gaga completed the month’s 21st IPO, the most since 22 in December 2007.

A Commerce Department report last Friday showed that the US economy expanded at a 2% annual rate in the third quarter as consumer spending climbed, a sign the expansion is developing staying power. The reading was in line with expectations.

The Standard & Poor’s 500 Index gained 3.4% in October after climbing 7.5% in the previous month. On Friday, the three major stock indexes ended the day barely budging from the previous day.

In Europe, stocks suffered their first weekly drop in four weeks. The Stoxx 600 Index lost 0.3% to 265.96 last week, cutting the gain for October to 2.4%.

In October, gold gained 3.7% to US$1,357.60 an ounce, its third straight monthly gain. Silver surged 13% for the month.

Gold may benefit further this week.

"We think the gold market has priced in around a US$500 billion QE exercise by the Fed," Standard Bank analyst Walter de Wet, told Reuters. "If the Fed comes out with a higher figure, we think gold will move higher. If it's lower, it is going to be bearish for gold."

Businesswire.co.nz

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