- It has been a week with only a few, but surprising data releases. While activity data in China came in on a stronger note, implying that the slowdown in growth has come to an end, the Developed World had to face disappointing labor market (US) and industrial output numbers (EMU). But this is nothing more than a temporary breather, not a challenge to our constructive view on both economies.
- Global markets will be watching the all-important FOMC meeting ending next Wednesday. While we stick to our long-held view that the Fed will announce its intention to reduce QE3 bond purchases, we think that last Friday's lackluster employment report could end up in a "tapering light", in which the central bank starts to reduce its monthly asset purchases to only USD 75bn from currently 85bn. The reduction will most likely be equally split between Treasuries and Mortgage Backed Securities.
- Furthermore, we expect the Fed to remain dovish on rates, highlighting that interest rates will remain very low for quite some time, and that a reduction in asset purchases does not alter the outlook for short-term rates. To further underpin this commitment, the FOMC may also change its forward guidance – by either lowering its unemployment rate threshold or by stating that it will not raise interest rates if it anticipates inflation below its long-run goal of 2%. But whether the Fed decides to change its forward guidance already next week is still too close to call.
- Better-than-expected Swiss macro data releases will most likely lead to a somewhat more positive growth assessment of the SNB at its upcoming quarterly monetary policy meeting next Thursday. But don't expect the bank to give any hint of a possible exit from its minimum exchange rate regime or zero interest rate policy.
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