By Michael Hunter
Insight into the Federal Reserve?s thinking on the outlook for monetary policy in the US will dominate traders? attention this week.
Tuesday?s release of the rate-setting Federal Open Markets Committee minutes will shed light on policymakers? strategy on standardising monetary policy. Ben Bernanke, Fed chairman, will add detail in his testimony to Congress on Wednesday, when he is expected to say that a further round of quantitative easing is not justified, despite the slow growth of the US economy and Friday?s weak jobs data.
?The April FOMC minutes included a detailed discussion of strategies for the ?normalisation? of monetary policy,? says Madhur Jha, economist at HSBC. ?The discussion over longer-term strategy may have continued in the June meeting, and the minutes may show whether the committee has narrowed down its options for an exit strategy at some point in the future.?
James Knightley, senior economist at ING, says: ?Inflation numbers are unlikely to worry the Fed, with the pace of increase in the headline consumer price index set to be slowed by recent falls in energy prices.?
A series of influential data from the US on Friday leaves investors facing a busy end to the week. Consumer price inflation, industrial production and the consumer sentiment survey from the University of Michigan will steer sentiment on the strength of the recovery in the world?s biggest economy.
Before that, economists expect the US trade deficit to grow to $45bn in May when it is released on Tuesday, with a fall of about 2 per cent in exports offsetting the effect of lower oil prices on nominal import levels.
The UK?s trade balance for May, due out on Tuesday, is thought likely to widen marginally. Consumer and retail price data for June, released on the same day, will highlight the latest twist in the Bank of England?s dilemma in addressing both stubborn inflation and vulnerable economic growth.
The Office of Budget Responsibility will publish its first fiscal sustainability report on Wednesday in which it will offer long-term projections for spending and revenues, as well as a survey of the public sector balance sheet.
In the eurozone on Tuesday, France?s consumer price index is thought likely to reveal rising services prices and higher food costs, but lower manufactured goods prices. The overall CPI reading is forecast to stay steady at 0.1 per cent, a 2.1 per cent advance year on year.
The recovery seen on Japanese markets faces a test in the form of consumer confidence data and machine tools orders data due out today.
The Bank of Japan?s existing monetary policy is expected to be left on hold at its rate-setting meeting on Tuesday.
? The Financial Times Limited 2011