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The elephant in the room

All about Europe

It was mostly about Europe at the end of last week. On Thursday the European Central Bank announced an end to its quantitative easing programme. On Friday the purchasing managers' index readings indicated a downturn in the French economy. Yesterday the Italian coalition came to an agreement about next year's budget.

The ECB had thoroughly prepared financial markets for its announcement about an end to asset purchases. Given the less-than-robust state of the Euroland economy - the bank downgraded its growth forecast on Thursday - the Governing Council might have preferred to hold back from turning off the money tap. But to do so would have unnerved investors.

In the event it might not have mattered: they were unnerved enough by Friday's provisional PMIs. Every one of the national and pan-Euroland measures - manufacturing, services and composite - came in lower on the month and below forecast. The particular concern was France, which delivered readings of 49.7, 49.6 and 49.3.  On the PMI scale of 0-100, anything below 50 represents contraction. 

America

The provisional PMIs from the States were scarcely better than Europe's, at 53.9, 53.4 and 53.6. Taken together, Friday's data tended to reinforce investors' concern that global economic growth is slowing.

The central banks of the United States, Britain and Japan will be taking that into account when they discuss monetary policy this week. For the Bank of England and the Bank of Japan, slower growth will have no effect on the immediate decision: both are expected to leave policy unchanged. 

With the Federal Open Market Committee there could well be an impact, not on what it decides to do this week but where it go in the future. Rather like the ECB and its end to quantitative easing, the Fed has little alternative but to increase the Funds rate by another 25 basis points on Wednesday.  The bigger question will be about where FOMC members see rates heading next year. Investors suspect that the answer to that might be "nowhere".

A busy week

A busy week gets off to a fairly gentle start, with only the finalised euro zone consumer price index data to attract any real attention. UK and Canadian inflation figures follow on Wednesday. The UK reports retail sales on Thursday and there will be an update the third quarter growth on Friday.

The only UK ecostat today is Rightmove's house price index, which looks at asking prices. The index is down by 1.7% for the month, leaving the annual rise at 0.7%. Headline euro zone inflation is expected to be unchanged at 2.0%, with core inflation at 1.0%. The New York Fed's manufacturing index and the NAHB housing market index come out after lunch. 

There is a risk of a partial government shutdown in the United States on Friday. The president wants $5bn from Congress to pay for his Mexican wall and Congress has offered $1.3bn. If, in protest, Trump refuses to sign the spending bill for 2019, staff in seven government agencies will not be paid. 

EUR held back by weak data

EUR held back by weak data

USD pins hopes on Fed rate hike

USD pins hopes on Fed rate hike

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