Central banks and interest rates seem set to continue dominating market moves this week, with decisions due from the Federal Reserve and the Bank of Japan and an explanation of last week's surprise rate rise from the Bank of England.
Overshadowing the early part of the week will be the Fed, which meets tomorrow.
Following an unexpectedly soft employment report on Friday, most investors expect the central bank to leave rates unchanged for the first time in more than two years of steady, quarter-point increases.
Futures markets showed only a 20 per cent probability of a rate rise is priced in, from a 40 per cent probability ahead of the jobs numbers. But, whether the Fed pauses or not, attention will focus on its accompanying statement for clues to likely future moves.
"Pause does not mean 'finished'," warned economists at Lehman Brothers, who expect the Fed to keep a bias towards further monetary tightening even if it does pause.
As the markets wait for the news, investors will have secondquarter US productivity data tomorrow, including revisions to previous estimates. The numbers could provide a better long-termgauge of the pace at which productivity is slowing.
US economists will also be waiting for the June trade data on Wednesday.
While the deficit is forecast to widen slightly, it is expected to hold below official assumptions of $66 billion (€51 billion), which could provide a boost to the first revision of second-quarter gross domestic product later this month.
On Wednesday, however, the main focus will be the Bank of England's quarterly inflation report.
Investors will be looking for the reasoning behind last week's quarter-point rate rise, which came as a surprise to markets, boosting sterling and pushing bond yields sharply higher on fears it might not be a one-off.
"We feel that the sense of panic on rates is overdone and we hope that the inflation report will help to anchor interest rateexpectations at sensible levels," said Philip Shaw at Investec, which viewed last week's move as something of a pre-emptive strike.
Before that, UK July retail data, due today, will be watched as a gauge of just how much June's consumer activity was lifted by the World Cup. Last month's high temperatures may also have had a wilting effect on shoppers.
On Thursday, attention will turn to the European Central Bank's monthly bulletin for more clues as to the likely pace of future rate rises.
Last week, the ECB raised rates by a quarter point to 3 per cent but failed to describe their stance as "vigilant" - a word the markets have come to associate with further rate tightening in the near future. - (Financial Times service)
