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By early afternoon in New York, the Dow was almost flat, down just 0.04% or 6 points at 15,744, while the other two major US stock index benchmarks managed to claim positive territory, with the S&P 500 erasing its earlier losses to rise 0.28% and the NASDAQ 100 climbing 0.58% to 3384.6.
Investor sentiment seems to continue to be very much dominated by the outlook for the Fed’s QE programme, but the awkward aspect of that is that the central bank’s committee has been very clear that the decision will hinge on economic data, meaning the market is left dangling waiting for the next report, with little clear direction at times when data is scarce. Unfortunately that describes this week pretty well thus far, where there has been a deficiency of any heavyweight indicators.
The latter half of the week is likely to deliver more in this area, with jobless claims tomorrow and industrial production data on Friday. We will also hear from those at the top of the tree at the Fed, with Ben Bernanke speaking publicly late tonight and Janet Yellen testifying before the Senate tomorrow.
We may see some knee-jerk reactions to Ms Yellen’s comments, but I personally would not expect her to divert too far from the Fed’s existing declarations, namely they have seen improvements but would like to see more, inflation is too low but should pick up, ultimately the decision will be made against incoming data.
The euro has strengthened against the dollar today, gaining 0.14% to 1.3455, despite a report earlier showing a surprisingly large drop in industrial production in the euro region during September.
Factory output declined 0.5% month-on-month, excluding construction, which does not bode well for Q3 GDP (for which we have a flash estimate tomorrow), but the fact that the euro has made up ground on the dollar suggests the market sees last week’s rate cut by the ECB as the end of its action for now, with QE from the central bank judged unlikely.