The market just can’t seem to make its mind up at the moment and while last week provided some big moves so far this week we’ve oscillated between the 5000 and 5100 mark.  The uneventful session in the US last night was a little surprising as the FOMC usually provides some fireworks, but investors are really waiting for the non farm numbers tomorrow.

We shouldn’t discount today’s interest rate decisions from the BOE and ECB where rates are expected to be kept on hold and the BOE will announce whether they’ll extend QE or not.

It’s difficult to see what impact QE has actually had on the overall economy as we’re still in a recession, the money supply is not getting any bigger and lending is still bottle necked.  The BOE, whose main purpose is to keep inflation in check, are mostly concerned that inflation is too low.  The weakness in sterling has had the artificial effect of keeping prices in the UK higher that most other major economies and despite the fact that inflation elsewhere is way lower than the UK’s, the BOE is concerned that it’s too low!  At least this is what they made clear in their August meeting and they even went as far as to say that they expected positive GDP to be driven by inventory building, but capped by weakness in housing.  They’ve been wrong on both accounts as UK businesses are still de-stocking and we all know that the housing market has seen a small revival.

It really does seem like they are waving a finger in the air, but to give them their due, predicting the future path of growth is not easy given the data we’ve seen.  PMI manufacturing and services numbers have beaten expectations and even this morning UK industrial and manufacturing production has come in higher, all of which point to positive GDP for last quarter, but this is not what was reported two weeks ago.  There maybe a revision upwards to the UK GDP, but the mixed data goes to show just how difficult it is to set monetary policy when you’re getting such conflicting numbers.

Printing more money could lead to a real inflation spike next year, particularly if oil continues its upward momentum, so the BOE must be careful that further QE does not fan this possibility and before you know it we’ll be back where we were a year and a half ago with interest rates rising aggressively to keep inflation in check.

The FTSE is has recovered from its lows but is still apprehensive ahead of midday’s decision.  While retailers continue to lead the way for the risers, banks and a few miners are dragging us lower.  Technically, we’re still below the 20 and 50 day moving average on the daily chart, so gains seem limited for the time being and it looks like we’ll need a major catalyst (perhaps tomorrow’s NFP) to give us the next leg higher.

Other markets are largely flat, no doubt waiting ahead of the interest rate decisions.  It’s very much a case of the usual markets complementing each other for now with indices lower, therefore oil and gold are in the red too and currency markets really are flat.

Is this the calm before the storm?!

Last Updated: November 5th, 2009