US data key ahead of December FOMC meeting

• Very busy US session on Wednesday;

• US data key ahead of December FOMC meeting;

• FOMC minutes to provide hints about potential December taper;

• No surprises from BoE minutes this morning

It’s been a relatively quiet start to the week, but things are expected to really pick up on Wednesday, particularly in the US.

The US session today brings everything from hugely important economic releases, to Fed speakers and FOMC minutes from the October meeting. We could be in for some massive swings in the markets today, particularly in response to the data or the minutes, which will be released later on in the session.

The reason why the data is so important is that it covers inflation, consumer spending and housing for the month of October, when the government shut down for almost three weeks and almost defaulted on its debt. While people have tried to play down the impact these had on the economy, particularly the long term health, today’s data will give us a much better idea.

And it’s not just what impact it had on the economy, the figures will also impact how the FOMC votes on asset purchases at the meeting in December. As it stands, the consensus is for tapering to come in the first quarter of next year, probably in March, but if the October figures confirm that the shutdown and debt ceiling battle had no negative impact, policy makers could decide that the recovery is therefore on a sustainable path. If it can take these two things then it may be a good time to see how it handle a $10 billion taper, for example.

This may have been different if the October jobs report hadn’t surprised significantly to the upside. But with this data suggesting that companies were not deterred from hiring, further confirmation today that the economy took it all in its stride will surely significantly raise the odds of tapering in December. We could therefore see another example of good data prompting a significant sell off in risk assets, such as equities, as well as US Treasuries.

This would also make the FOMC minutes even more interesting as any suggestion that strong figures between October and December could prompt a taper would only exaggerate the reaction in the markets. Today could provide the clearest insight for months about how the FOMC will act in the months ahead. As always though, investors will interpret this in their own way which means we should see a huge spike in volatility today.

There were no surprises in the Bank of England minutes this morning, with the MPC voting unanimously to keep interest rates and asset purchases unchanged at 0.5% and £375 billion, respectively. There was a chance that the minutes could have provided insight into whether any policy makers were in favour of changing the banks forward guidance in response to the unemployment rate falling faster than expected.

This was not the case though which means it’s now very unlikely that it will be changed going forward. The minutes did stress that the unemployment rate hitting 7% wasn’t a trigger for a rate hike, but this is something we were already aware of, and something that Governor Mark Carney made perfectly clear at the quarterly inflation report press conference last week.

With the UK recovery expected to continue to gather pace in the coming quarters, which will lead to further speculation that the BoE will raise interest rates earlier and earlier, it’s hard to imagine what exactly will stop the sterling rally. On the upside, this will help curb any rises in inflation, which will delight households in particular given the difference between wage growth and the cost of living. The flip side of this though is the impact of the stronger pound on exporters. This is going to make the job of rebalancing the economy even more difficult for the government.

Ahead of the open we expect to see the S&P down 3 points, the Dow down 15 points and the NASDAQ down 5 points.