With the holiday season right around the corner (I was informed by a retail analyst that Christmas merchandise has been on the shelves since early August this year…a new record), markets are now focused on the direction for the final quarter of the year. The FOMC (Federal Open Market Committee) meeting taking place on Wednesday will be closely watched for any hints on how far off a tapering to its massive asset purchasing program is.
In the aftermath of a very weak, pre-government shutdown September jobs figure for the U.S., investors will also be looking for clues on the strength of the U.S. economy, and whether we can expect a pick-up before round two of the budget and debt ceiling debates early next year.
(Read more: Six dangerous myths about the debt ceiling)
Capital Economics pointed to the market sensitivity towards tapering, and the dovish stance of the next Federal Reserve chairman, Janet Yellen, as reasons why the Fed will err on the side of caution, and only put forth modest tapering measures. Capital Economics raised the possibility of asset purchases being cut to $75 billion, from $85 billion per month, but didn't see it happening before March.