Next week’s economic and financial news will be dominated by central bank meetings: the Federal Reserve FOMC on Tuesday 3rd and Wednesday 4th, and the ECB Governing Council and Bank of England Monetary Policy Committee on Thursday 5th. As regards the ECB, there is virtually no doubt either about the decision that will be taken on monetary policy (no change to key rates) or the tone of comments following the meeting. The latest surveys for October both at eurozone level (PMI, European Commission) and national level (Ifo, INSEE, ISAE) have shown further improvement in economic conditions, which supports the scenario of relatively solid GDP growth in the second half of this year. Inflation picked up again in October, but was still negative (-0.1% after -0.3% in September). Above all, core inflation is highly likely to remain stable at 1.2%. Finally, credit aggregates decelerated again in September. The US economy emerged from recession in the third quarter and did so convincingly, based on the initial GDP estimate of growth of 3.5% (annualised quarterly rate), having been in decline for three consecutive quarters. Furthermore, in addition to the expected positive effect of inventory reductions coming to an end, higher consumer spending made a substantial contribution to this strong third-quarter performance. Consumer spending increased by 3.4% and residential investment rose for the first time since the third quarter of 2005, climbing 23.3%. However, while all of the economic indicators are signalling that growth will continue over the next few quarters, it is highly likely that this will be at a slower rate. Budgetary support measures will disappear gradually, while as a result of unfavourable base effects relating to energy prices, inflation will return to positive ground in the very near future. In addition, worsening job market conditions are continuing to dent consumer confidence, which deteriorated considerably in October, with the Conference Board index dipping from 53.3 to 47.7, while the University of Michigan index fell by nearly 3 points to 70.6. Consumer spending is therefore likely to remain weak in Q4 2009. Indeed, we expect a further decline in job losses in October of around 175,000. In spite of everything, this should reflect the more favourable trend of the last few months, with the number of people in employment decreasing by a monthly average of 256,000 in Q3, 428,000 in Q2 and 691,000 in Q1. However, unemployment is likely to have risen further and could even pass the 10% mark. Investors will pay particular attention to the terms of the press release published following the FOMC meeting. In particular, some will wonder whether the Fed will retain the expression “for a prolonged period” when describing its desired time frame for keeping Fed funds at exceptionally low levels. Going by the contents of the Beige Book published two weeks ago, as well as statements made by Fed officials since the last meeting in September, and – last but not least – not forgetting the still fragile nature of recovery, there is no reason to fear a change in rhetoric. Under these conditions, the dollar’s return to form over the last few days - as a result of a slightly reduced appetite for risk and evaluations concerning what direction US monetary policy will take in the run-up to the Fed meeting - might not last beyond this. All of this provides a favourable framework for a strong performance by the bond market over the next few months. 10-year government bond yields in the US and Europe could therefore move back to 3.50% and below respectively between now and the end of the year In the UK, the disappointing 0.4% q/q fall in GDP in Q3, in addition to a further slowdown in M4, increases the likelihood that the Bank of England will increase the budget allocated to purchases of assets. Currently capped at £175bn, it could be raised to £225bn. This Friday, the Bank of Japan’s Policy Board took the decision to let it programme of outright purchases of CP and corporate bonds expire as scheduled by the end of 2009, as conditions in this market segment has sufficiently improved. At the same time, the Bank revised its projections slightly upwards.