(Photo: Reuters)
(Photo: Reuters)

Another week and investors are set to start it in unhappier spirits than ever. A week ago I wrote that Federal Reserve Chairman Ben Bernanke would make clear in his press conference last Wednesday that tapering asset purchases is different altogether from starting to increase interest rates, which he has no intention of doing for at least another two years.


Second, that he would dispel explicitly the false notion that the asset purchase programme is linked to specific levels of Unemployment.


Third, that he probably should announce a timetable for tapering and, indeed, the ending of the current programme of new purchases but without committing to any dates for disposals.

No check, and the feathers have been flying since.


Springing to mind are the lines from that wonderful hymn Cwm Rhondda that is so popular in Wales:

'Bread of heaven, bread of heaven! Feed me till I want no more.'

Bernanke tried his best to say that there was still plenty more 'bread' to come and even if he did eventually rein back the Federal Open Market Committee's (FOMC) 'supply' it would only be because the US economy's continuing progress should fill the gap.

Nevertheless, it is clear that many investors:

(1) Can never have enough quantitative easing (QE)

(2) Would prefer QE to continue even if it meant a slower recovery in the US economy

(3 ) View the prospect of a stronger dollar with alarm as it threatens carry trades

(4) Dismiss Big Ben's carefully balanced words as a recipe for uncertainty.

Accordingly, for them the game is up for 'easy' money, even if the FOMC take years to return policy to 'normality'.

Even worse, the realisation has dawned that many developing countries are not growing as fast as they used to. Brazil and Turkey are obvious fallen idols but many Asian countries are also facing a soft patch.

Foreign investors have been wary of China for some time but even the believers (like me) are having to accept that the new leadership really is determined to sacrifice growth in order to restrain asset price bubbles.

Accordingly, with echoes of the herd-like behaviour of risk-on / risk-off in 2009-12, investors are bringing their money home and not just to the US, with the dollar as the main beneficiary.

This is creating a pecking order of losses with US equities the least affected while emerging markets (equities, bonds and currencies) and gold are hit hardest.

This could eventually turn out to be quite healthy but in the meantime markets will be very skittish in reacting to every piece of US economic data and every pronouncement by Bernanke and his FOMC colleagues.


The European Union Summit takes place on Thursday and Friday and the main topic will be to sort out the Finance Ministers' tortuous and incomplete negotiations on bank rescues.

As German Chancellor Angela Merkel's absolute priority is to avoid trouble before the September elections the emphasis will be on national governments having primary responsibility. This, of course, defeats the purpose of breaking the inter-dependence of Southern European banks and governments.

It will be interesting to see if public rows can be avoided over Cyprus's apparent request for a renegotiation of its bail-out and the IMF's increasing vexation over Greece.

The Dutch government has already put a dampener on proceedings by calling for a halt on 'ever closer union' and putting forward a list of powers that should not be transferred to Brussels.

Prime Minister Mark Rutte and Our Dave are, of course, best mates.

Something appears to be afoot over Syria following the G8 summit.

US President Barack Obama, who is much less keen to intervene than UK Prime Minister David Cameron or, indeed, his own Secretary of State, John Kerry, may have agreed with Vladimir Putin that the Assad regime should be replaced.

But without Al Qaeda's getting its hands on high-tech weaponry.

This could also form part of the game of chess with Iran that has been in suspense during Ahmadinejad's blundering and blustering. Add in the prospect of direct talks with the Taliban and North Korea and Mr Obama could yet transform US foreign policy.

To be fair, he seems genuinely interested in promoting peace globally but it is also about saving money after President Bush's profligate foreign campaigns.

Keeping their money rolling in is, of course, the chief concern common to all the US's adversaries.

Maybe money makes the world go round after all!

In the UK, Chancellor George Osborne will reveal details of the Spending Review through to 2015-16, which has proved rather tricky owing to previous commitments to ring-fence Health and Education and subsequent recalcitrance by various other ministers.

It is all about positioning ahead of the election in 2015, with the Chancellor portraying himself as sticking to fiscal rectitude but actually pragmatically accepting that everything cannot be done at once and meanwhile the economy is recovering. It may seem rather phony for now, especially as both the Lib Dems and Labour have already said they will adhere to the Osborne's targets, but it is welcome further evidence of a new realism over the future of the UK's public finances.


With US data henceforth under the spotlight even more, the focus will not so much be on the retrospective third cut of Q1 GDP as the more recent Personal Incomes and Spending in May, together with the prospective Chicago PMI and Conference Board Consumer Confidence for June. Fortunately (or otherwise, see above) they are all likely to be quite positive.

A raft of data from Europe may be slightly better than last month but not enough to confirm the recent renewed 'confidence' of French President Francois Hollande and Van Rompuy.

As usual, the numbers from Germany should be considerably better than those from elsewhere.

The jury is still out on Abenomics, which is surely only fair, but there should be some encouraging signs of lessening deflation and business expansion.

A modest highlight in the UK could be a 0.1% upwards revision in the third cut of Q1 GDP and adjustments to earlier periods, finally nailing the so-called 'double dip' in late 2011 to early 2012. Mr Osborne's manner on Wednesday should provide some advance clues.

Alastair Winter is the Chief Economist at Daniel Stewart & Co