Signe Roed-Frederiksen
Danske Bank A/S
The October FOMC statement was on balance less dovish than could have been expected given the recent stream of weak data from the US.
In the part describing the current economic situation, the only downgrade was on housing. The statement now says that "the recovery in housing sector has slowed somewhat in recent months" compared to September where it was said that “the recovery in housing had strengthened”.
The only other change in the statement compared to September is basically an upgrade in the outlook, as there is no longer a direct mention of the risk to growth and the labour market from tighter financial conditions.
In our view, the latest loss of growth momentum coupled with the potential negative impact from the political mess in October, has increased the uncertainty on the 2014 economic outlook. Although the FOMC did not see any reason to signal this increase in uncertainty in today’s statement, we nevertheless believe that it will impact monetary policy decisions over the coming months.
In particular, we see the March FOMC meeting as the most likely start of tapering, as it will take at least some more months of data to convince the Fed that the current weakness in economic data is only a temporary phenomenon.
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GBP/USD remains depressed near 1.2520 on stronger Dollar
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Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
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Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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