World Week Ahead Syria and the taper

Monday 9th September 2013

US President Barack Obama's speech aimed at gaining domestic support for military action against Syria and the continuing debate over the timing of the start of the Federal Reserve's taper will top this week's agenda.

President Obama is scheduled to make his Oval Office address on Tuesday evening, hoping to convince Americans that the US must act. The risks of a strike though have risen after Obama failed to gather much international support at last week's G20 meeting in Russia. The US Senate and House have yet to vote on US military action.

Last week, Russian President Vladimir Putin said his country will help Syria in the event of an attack.

"The worry is that a surgical strike suddenly changes and becomes a bigger, wider event," Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey, told Reuters.

Meanwhile, weaker-than-expected US payrolls data on Friday did not alter expectations that the Fed will announce plans to begin easing back its bond-buying program after a two-day meeting starting September 17.

Fed policy makers will reduce Treasury purchases to US$35 billion from US$45 billion while maintaining mortgage-bond buying at US$40 billion, according to the median of 34 responses in a Bloomberg News survey of economists on Friday. That pace was unchanged from an August 9-13 poll, as was a projection that the programme will end in June.

Bill Gross, manager of the world's biggest bond mutual fund, agreed.

"I think Bernanke and company are committed to a taper," Gross, co-founder of Pacific Investment Management, told Bloomberg. "It will be taper lite as opposed to a strong tapering."

On Friday, Kansas City Fed President Esther George also called for reducing the program.

"For example, an appropriate next step toward normalising monetary policy could be to reduce the pace of purchases from US$85 billion to something around US$70 billion per month, then have purchases going forward split evenly between Treasury and agency-MBS securities," George said in a speech.

"As long as labour markets continue to heal and inflation remains stable near its target, I would like to see the pace of purchases gradually decline and brought to a close in the first half of next year," according to George.

On Friday, the Dow Jones Industrial Average ended with a 0.1 percent decline for the day. The Standard & Poor's 500 Index eked out a 0.01 percent gain while the Nasdaq Composite Index closed 0.03 percent higher.

For the week, however, the Dow gained 0.76 percent, the S&P 500 rose 1.36 percent, while the Nasdaq advanced 1.95 percent.

In the coming days, the latest US economic clues will come in the form of reports on consumer credit, due Monday, the NFIB small business optimism index, due Tuesday, wholesale trade, due Wednesday, import and export prices, due Thursday, the producer price index and retail sales, both due on Friday.

San Francisco Fed President John Williams is scheduled to speak on the view from the Fed at a conference in San Francisco on Monday.

In Europe, the Stoxx 600 Index climbed 3 percent last week. Germany's DAX and the UK's FTSE 100 both gained 2.1 percent, while France's CAC 40 rose 2.9 percent in the past five days.

Here, the latest clues on the economy will arrive in the form of reports on German CPI, due Wednesday, euro-zone industrial production, due Thursday, and the euro-zone trade balance, due Friday.

The week is beginning with some positive news from the world's second biggest economy-China reported that exports in August rose at a faster pace than forecast. More data on China is expected this week including industrial output, producer prices and money lending.

BusinessDesk.co.nz

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