Market Forecasts: US Taper, Chinese Data Remain Concerns

Following the major moves over the last week, we have seen this week start with some sharp moves, but without any clear direction in many markets. Sterling started and ended the day around the 1.54 with a move down to 1.5340 suggesting there may be limited scope for further gains from the US Dollar. With little of note today aside from Bank of England governor King’s final appearance, the focus will be on US data.

We have been talking for the few weeks about the US Fed withdrawing stimulus and the effect this has had on the markets. The recent guidance from Fed chief Ben Bernanke saw the US dollar strengthen, though this reduction of stimulus will depend on the data, so the busy afternoon calendar could see some sharp moves.

The forecasts are for slightly weaker data than last time around, so we would see for further dollar strength following durable goods, consumer confidence and housing data if we beat expectations.

Of the global central banks, the Fed tends to be the most open, trying to provide guidance to steer the market and last night was a prime example. Three voting members made comments to calm jitters over the reduction and removal of quantitative easing, and to suggest there may be further guidance over when base rates may start to rise. This in clearly a reaction to the sharply rising US bond yields that have seen the benchmark rise to 2.3% from 2% following Bernanke’s speech.

The concerns continue in China with the main equity market, the Shanghai composite down 5% today leaving it over 20% down from the highs. The central bank decided against intervening in the market again today which meant short term rates moved higher over the course of the day, squeezing liquidity again.

Following concerns over Greece, all has gone quiet with very little on the calendar aside from ECB president Mario Draghi speaking in Berlin.