Over the last couple of weeks, the economic data from the US, the UK and the eurozone has painted a picture of a global economy which is slowing, but not alarmingly so, allowing stock markets to recover from their August swoon but not enough for them to make new highs.

Now, we are about to get the central bankers’ view of where each of these economies is and the big question investors are asking themselves is ‘Does the Fed/Bank of England/ECB know more than we do?’.

Starting with Europe, where the ECB (European Central Bank) has already lowered rates once and is expected to go again this Thursday (12 September) with another 0.25% cut from 3.75% to 3.5%, the focus will be on the outlook.

Eurozone inflation is mildly above the bank’s 2% target, but manufacturing PMIs (purchasing managers’ indices) are still deep in negative territory and German economic data has been weak for the last two months, so there is a possibility the bank could signal more cuts in October, which could weigh on sentiment and lead to increased volatility rather than reassuring markets.

In the UK, the decision on whether to cut a second time is finely poised as manufacturing surveys are positive, as is consumer confidence, and house prices are beginning to run away again, whereas wage growth has slowed somewhat and data from the retail sector shows shoppers are still reluctant to spend, so a further 0.25% reduction in rates could go a long way to generating a ‘feel-good factor’.

The biggest conundrum though is what the Fed will do – US manufacturing data has been ok, inflation is ok and even the jobless figures have been ok, but some current and former decision-makers are hinting a cut of 0.5% is needed which suggests things aren’t quite as ok as they look on the surface.

The danger is investors will take a big rate cut as a negative signal, creating more volatility and sending the market down again which is not the Fed’s intention.

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