Now for the biggest week of the year for investors and markets around the world with the US Federal Reserve set to start cutting its $US85 billion a month of stimulatory spending.
The US Federal Reserve will release its post meeting statement in the early hours of Thursday morning, along with new economic forecasts, and an hour or two later chairman Ben Bernanke will appear before the media to discuss the decision.
An overwhelming majority of US analysts reckon the Fed will start easing its spending by $US10 to $US15 billion a month until the end of the year to see how markets react, and then a further announcement in December or January of a new reduction in the amount of spending.
The aim will be to eliminate spending altogether by mid 2014, well ahead of the mid term elections in November of that year.
The only factor that might make the Fed wary is the looming brawl in Congress between the hard right republican controlled House of Representatives and the President and Democrats on the Federal debt ceiling.
That could erupt in early October and bring about another round of gridlock – for that reason the Fed might make its tapering conditional on that being resolved or start cutting spending from November to separate the brawl from the tapering move.
Most markets though – as we saw last week with equities – seem calm (although commodities will dip, led by gold and silver).
It will be different to earlier this year when, on May 22, Mr Bernanke first raised the question of slowing the current round of easing (called QE 3) – the reaction was violent as shares and commodities plunged (led by gold) and bond yields soared (rising 1% in a month).
Sharemarkets sold off heavily and the Standard & Poor’s 500 lost 7.5% for the month, and other markets around the globe lost heavily as well.
But Reuters pointed out at the weekend that, "it appears equity and bond markets are poised to take next week’s Fed decision largely in stride – provided the central bank doesn’t surprise with the size of its move or shock in some other way.
"The scale of the tapering and what Fed Chairman Ben Bernanke might say at his press conference are key here, but the steady messaging in the last few months means next week probably won’t see carnage in the markets.
"Investors have already done a lot of work in absorbing the Fed’s message. Benchmark bond yields are now hovering near two-year highs, while stocks have edged off highs reached in early August, removing some of the froth that had started to concern some investment strategists," Reuters reported in summarising market feeling about this week’s meeting.
Watch US Bond Yields In The Wake Of The Fed’s Decision
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The AMP’s chief economist Dr Shane Oliver agreed, saying "We expect the Fed to announce that it will be scaling back its monthly asset purchases from $US85bn to $US75bn".
"Such a move will hardly come as a surprise as the Fed has been warning of its since May and a September taper has become the market consensus expectation.
"The softer than expected August jobs report means that such a move is not a done deal, but on balance the run of data released recently suggest that the US economy has picked up pace enough to withstand a lessening in the pace of stimulus.
"However, because growth is still far from robust the Fed is likely to indicate the pace of quantitative easing will not be reduced in a straight line and that interest rates are unlikely to be hiked until sometime in 2015 at the earliest.
"Its dovish forward guidance is likely to be focussed on pushing back against the recent back up in bond yields. To avoid pressure on mortgage rates it’s also more likely to cut back purchases of bonds as opposed to mortgage backed securities.
"Finally, it’s worth stressing that tapering its QE program is not the same as a monetary tightening – it will just be equivalent to cutting interest rates at a slower rate," Dr Oliver wrote.
Elsewhere in the US, there will be some figures of interest for investors and the markets. Industrial production for August, inflation for last month, housing starts for August, home sales (also for last month) and two regional surveys of manufacturing from the Fed.
All should indicate the economy remains solid, although housing starts and sales might show a slowing in reaction to the recent rise in mortgage rates.
In Europe, the German national elections next Sunday will be important.
Polls show that Angela Merkel will be returned as Chancellor with the main uncertainty relating to whether she will lead a coalition with the Free Democrats (as at present) or the Social Democrats (as over 2005-09).
The latter seems to be the most likely outcome, judging by opinion polls late last week showing a close vote with the Free Democrats however losing a lot of ground.
The vote though will clear the way for a third bailout of the stricken Greek economy in October or November, according to reports from Europe.
And still in Europe, keep a close eye on Italy where a panel in the country’s Senate (upper house) is due to vote on whether Silvio Berlusconi should be expelled from parliament following a conviction for tax fraud.
The media tycoon’s allies have threatened to sink the government led by prime mInister Enrico Letta if the vote goes against Berlusconi. That’s why the cost of Italian debt has risen past that of Spain.
There are fears the Italian government could fall and new elections called for later in the year, plunging the recessed economy into new uncertainty.
That in turn could provide an unwelcome test for Mrs Merkel before Sunday’s elections.
And in Australia, the minutes from the RBA’s last Board meeting tomorrow will be watched closely to see the strength of the change of heart on future interest rate cuts that appeared in statement by Governor Glenn Stevens in his post meeting statement earlier this month.
There’s also a speech by RBA Assistant Governor Malcolm Edey on Wednesday. The Australian Bureau of Statistics is due to release car sales data for August as well.
And on the corporate front, we get full year results from linked companies TPG, Brickworks, New Hope Coal and Washington H. Soul Pattinson.
And luxury retailer Oroton which has parted ways with its CEO, is due to reveal its full year figures as well.
