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Markets continue to speculate over the chances of the US Federal Reserve reducing its monthly debt-purchasing programme. The Fed’s strategy has very much been to introduce thoughts of this possibility at an early stage and shake the tree to lose nervous holders. The thinking behind this is that, with conjecture stretched out over a longer time, markets should price in a more calculated assessment rather than a panicked response.
At this point it looks like the eurozone could be classified as a nervous holder, judging by its reaction every time the topic of tapering reappears at the top of discussion lists. The other major areas showing worrying signs are Asian (less China) and developing markets. In these regions, a number of currencies have come under some real pressure, and have affected equity markets as a consequence. For example, the Indian rupee has now dropped 19% against the US dollar since the beginning of the year.
Before tonight’s FOMC minutes we will also get a chance to assess the latest US existing homes sales and crude oil inventories. Both of these figures could affect the commodity markets for copper and crude. Caution remains the word of the day.