US equities extended recent strong rebound and ended sharply high overnight. Sentiments were lifted by strong consumer confidence data as well as expectation that FOMC would stay on the dovish side after ending QE. DJIA rose 187.81 pts, or 1.12% to close at 17005.75, reclaiming 17000 level. S&P 500 also rose 23.42 pts, or 1.19% to close at 1985.05. Both are relatively close to record highs of 17350.64 and 2019.26 respectively. In the currency markets, Yen remains the weakest currency this week as weighed down by risk appetite. Meanwhile, commodity currencies record broad based gain with Kiwi and Aussie being the stronger ones.
Fed is widely expected to end the so called QE3 at today's FOMC meeting by tapering the final USD 15b of monthly asset purchase. There is a slim chance of USD 10b today and leave the final USD 5b reduction for December meeting. With that, there would be significant changes in the statement. Main focus is on the language regarding the timing of the rate hike. But majority of economists expected Fed to maintain that rates would stay low for "considerable time" after ending QE. Inflation outlook would likely be unchanged as FOMC just noted in the September statement that "the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year." Regarding labor market, Fed could maintain that there is "significant underutilization" in resources. Overall, Fed could maintain a dovish tone and hint that if would wait longer before finally raising interest rates.
Elsewhere, BoE deputy governor Jon Cunliffe said that "the softening in the pay and inflation data, together with the weaker external environment, for me implies that we can afford to maintain the current degree of monetary stimulus for a longer period than previously thought." And, "the risk of a surprising pick-up in inflationary pressure may be more manageable than the risk of the expansion stalling and inflation dropping further." Earlier this week, another BoE deputy governor Minouche Shafik said that there was "no significant evidence" of price pressures and slack remained in the job market. She noted the central bank would need to see "see more of the data pointing in the same direction in terms of price pressures - particularly in terms of wages and unit labor costs" before hiking interest rates. Overall, recent comments argued that the central bank would keep rates unchanged longer than expected.
On the data front, Japan industrial production rose 2.7% mom in September versus expectation of 2.5% mom. UK will release mortgage approvals and M4 money supply. Canada will release IPPI and RMPI.