Big Picture: We expect the FOMC to reduce the pace of its asset purchases by a relatively small amount at this week’s meeting, while also making changes to its forward guidance to signal that interest rate hikes are some way off. This would be a relatively positive development for financial markets, though investors already started to factor in a more favourable outcome following the August labour market report.
Eurozone: Industrial output slumped in July, but we expect output in the industrial sector to expand in the coming months as the world economy gains momentum, led by the US and Asia, and as eurozone demand is helped by slower austerity. This has also been signalled by recent eurozone manufacturing surveys.
US: Last week’s data suggested that consumer spending remains soft, though we think that this is about to change. Headwinds from the rise in taxes are fading. Meanwhile, we expect the labour market recovery to step up a gear. There are signs of stronger spending in vehicle sales and the ISM non-manufacturing report.
Asia: Asian assets could face a more volatile environment in the run-up to the FOMC meeting, with most of the potential focus on India and Indonesia. Nevertheless, their respective central banks are taking a vigilant approach to these risks, while we also expect the FOMC meeting to be relatively benign.