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Politics, policy, and politics and policy

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  • The US mid-term election (partial) results were taken well by financial markets. The key investor flash points now are likely to be government shutdown risks and debate about Fed independence (markets will want Congress to realise that economists, not politicians, should run central banks).
  • The Bank of England meets on policy - having been early to tighten quantitative policy (from Q2 2013) and innovative in tightening regulatory policy (announced over the summer) the pressure for action on interest rates may have diminished somewhat.
  • With Euro area inflation not seen falling further, and political pressures swirling around the topic, we do not see the ECB pursuing an open ended commitment to purchase Euro government bonds. However, in the wake of Japanese PM Abe's quantitative policy change last week, the topic is bound to be raised today.
  • The US has a trio of Fed speakers, but of more interest for the medium term it also has productivity and unit labour cost data. With around two thirds of US inflation coming from labour costs, this is pertinent to issues around the timing of US interest rate changes.

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