httpvh://www.youtube.com/watch?v=FDRUxI506CA

The Fed meet tonight in what could be the most important committee decision in the last year. we all know that interest rates are too stay close to zero, the question is whether they decide to raise the amount of QE in the economy in order to drive on spending in the US economy.

I think it is warranted but will not happen tonight. The Fed will more than likely be looking for another confirmatory dip in retail and business spending combined with another rise in unemployment.

Even without the decision equity markets rallied as if the lever had been pulled taking some risky assets with them. The disconnect between equities, bonds and commodities is quite alarming now and I would think that if the QE2 is not launched soon then the mini-bubble equity markets are experiencing is likely to burst.

Someone’s bubble which has already burst is that of Ireland. As we told you yesterday fears had increased of further fiscal issues for the country as it deals with its heavily indebted banking sector. Its actions to appease the markets have so far proved ineffectual with the cost of insuring Irish debt against default rising to all-time record highs. Yesterday both the PM Brian Cowen and the Finance Minister Brian Lenihan held a press conference surrounding these issues. There was little end result and Ireland has to jump an important hurdle in the form of a debt auction today. It is only a small auction however but the vultures will be circling. We also have auctions from Spain and Greece today with a Portuguese one due tomorrow.

Sterling was unable to gain against the euro however after UK mortgage lending fell in August for the second month in a row. The number of homes sold also fell by 5,000 to 85,000. A report detailing the lack of lending to the manufacturing industry also harmed the pound. It wasn’t all bad news however as the ratings agency Moody’s reaffirmed its triple-A rating on the UK and stated that it is safe due to the austerity measures the coalition government is likely to enact. While this is good news it is not huge news and we would need to see Standard & Poors, who maintain a negative outlook on the UK, change their mind before changing our minds.

So, needless to say this will be a very busy day in the markets. Apart from the Fed decision at 19.15 we also have UK PSNB at 09.30 and US Housing Starts at 13.30.