Markets remain buoyant

Risk assets retained their positive performance into the end of
last week with US equities closing the week higher and the VIX
“fear gauge” closing lower, while 10 year US Treasury yields
continued to pivot around 2.5 per cent. Meanwhile, the USD remains
on the back foot finding little help from data releases especially
last week’s September employment report. Friday’s release of
September US durable goods orders similarly disappointed, with core
orders coming in weaker than anticipated. This means that weaker
data is helping to aid expectations that Fed tapering may be
delayed, boosting risk assets in turn.

This week will bring much of the same. There is a plethora of US
data releases on tap including retail sales, CPI inflation, October
consumer confidence and ISM manufacturing. Additionally, there is a
Fed FOMC meeting this week -although no surprises are expected at
this meeting. US data releases will look relatively soft but given
the market mood this will bode well for risk assets. The jury is
out with regards to the timing of tapering but many are looking for
it to take place in Mar/Apr 2014.

The pound fell severely overnight. However, not particularly
strong on an historical basis, it was extraordinary given the event
risk that lies ahead. In fact, the push was strong enough to drive
GBPUSD below 1.61 after more than a week of congestion and
leveraged EURGBP to a two-month high. There was no significant
fundamental data released around this aggressive move, which
suggests this was a heavy market moving without the immediate
backing for follow through.

The docket was not completely barren on Monday, though. The CBI
business group reported its October sales figures to significant
surprise: the two-reading was far worse than the expected 32
forecast and the biggest point drop since January 2005.