US Manufacturing does little to prevent the possibility of QE

Sterling had a good day yesterday, after it was boosted over the 1.154 level on the back of some positive Manufacturing data which came out at 54.9 which was above the expected 53.3. The bad news came from Hometrack releasing their survey showing that house prices have fallen and will likely continue to fall in the lead up to the festive period.

Nicolas Sarkozy is welcomed to London today as David Cameron attempts to improve relations between Paris and Berlin. The two leaders plan to sign Anglo-French treaties which will commit the countries to improved defence and nuclear co-operation. This does not seem to be the only reason for the treaties being signed, what with Angela Merkel being wined and dines at Cameron’s country house. It is clear that Cameron holds hopes that these meetings will cultivate the improvement of the relations and it going about it as practically as he can.

While the Fed’s meeting begins today and continues on Wednesday it looks like the US are getting little respite from the action. Today is the mid-term elections, which many believe will be a Republican triumph and so no doubt there is worry in the Obama Camp. What might help him gain a more stable foothold are the US Manufacturing figures, which came out at 56.9% for September, this is a rebound from Augusts 54.4%. Manufacturers did not seem to be too badly affected by the surging commodity prices and the weak dollar, this sign of strength could cause the Fed to be more cautious in their meeting when it comes to further QE, but is unlikely. Likewise, Construction Spending rose by 0.5% which thrashed the market forecast of a decrease by 0.5% but still seems to be going nowhere. Manufacturing was tempered by the release of the Core Personal Consumption Expenditure which dropped from down 0.1% for September and showed that personal incomes have fallen. Needless to say it is the outcome of the Fed decision on QE2 which will be the focus of the next few days.

The White House deputy national security advisor, Mike Froman, spoke yesterday to say that the US will push for firmer commitments at the forthcoming G20 Summit meeting to correct the global imbalances, but did mention he did not think the China currency issue will be solved immediately.

Today is almost completely empty of data apart from a brief outburst this morning with UK PMI Construction and the Eurozone PMI Manufacturing. Australia hiked the interest rate to 4.75% from 4.50%, launching an attack on its rivals, and strengthening the AUD.