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The Week in Hindsight; 06 Dec 2013

US monetary policy continued to drive markets up until the final hours of trading on Friday following a week that saw US, UK and European markets fall in tandem from the outset.

The roller coaster week saw a drop to 7% in the US unemployment rate and a non-farm payrolls number that trumped all forecasts following closely on the heels of a similar triumph for US GDP figures.
The rally in US economic numbers initially saw markets panic over the potential for the Federal Reserve to begin tapering ahead of Christmas. The Dow Jones, FTSE 100, Dax, CAC 40 and IBEX 35 all fell late into the afternoon before beginning to reverse losses.
BNP Paribas, Goldman Sachs, Nomura and Barclay’s Capital each announced a general consensus that the Federal Reserve will opt to hold off on tapering until March 2014, indicating a clear path ahead for global equities going forward into the New Year.
Despite voices of calm from various corners of the industry, markets are likely to remain volatile up until the FOMC statement and press conference on Wednesday the 18th December.

FTSE 100 RETREATS AHEAD OF US DATA

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UK economy extends recovery

The opening week to December saw the UK economy extend its recovery as Manufacturing and Construction data topped forecasts.The manufacturing sector saw its eighth consecutive month of expansion and the steepest up tick in activity levels since the onset of the global financial crisis. 
The UK Construction industry managed a similar triumph as order books filled up at their fastest rate in a close to a decade while overall output from the sector reached a six year peak. The health and vitality is important to the UK economy as it is estimated that contraction in the sector may have shaved as much as one percentage point off of UK GDP over the past 18 months. 
The construction data came a day ahead of the UK Services PMI which saw the pace of expansion within the sector slow moderately throughout November.
The latter end of the week also saw Chancellor George Osborne underline the economic recovery with a warning about complacency while delivering his autumn statement to parliament.
The statement saw a number of fiscal measures announced along with a plan to increase the levy upon financial institutions for the sixth time since 2011. This is as the annual tax on bank profits has repeatedly failed to raise the intended level of funding since its implementation.
Overall, news emanating from the UK economy remains positive however risks to the renaissance to exist. These are found in the continuing lag between wage growth and inflation as stagnant incomes remain under pressure from stubbornly high inflation. The next CPI reading is due on Tuesday 17th December.

DOW JONES RETREATS AHEAD OF US DATA