Markets calm ahead of tomorrow's speech by Fed's Bernanke

Markets have been relatively quiet this morning as traders focus their attention on what could come out of a speech by Federal Reserve chairman Ben Bernanke tomorrow.

The threat of tapering - a reduction in the rate of expansion of the Fed's balance sheet - is still hot news, with analysts trying to predict when this may begin.

This morning ratings agency Moody's suggested that Asian banks would be particularly susceptible. Stephen Long, the managing director for Moody's Financial Institutions Group in the Asia Pacific region said that "borrowers' leverage has increased, asset prices have materially appreciated and, in the process, both borrowers and banks may have become more susceptible to asset quality deterioration, especially if the interest rate cycle turns".

Ishaq Siddiqi, market strategist, ETX Capital:

A subdued but mildly positive start for European share markets this morning as investors gear up for a torrent of economic data together with testimony to US Congress by Federal Reserve chief Ben Bernanke on Wednesday and Thursday. Risk sentiment remains broadly supportive with stocks on Wall Street again posting fresh record highs on Monday despite weaker than expected retail sales data. Asian markets overnight drifted lower however, easing after previous session gains on the estimate-meeting Chinese GDP figures for Q2 with the focus switching to Bernanke’s speech.

Mike van Dulken, head of research at Accendo Markets, commented this morning;

Muted activity suggests traders reverting to familiar wait-and-see-for-Bernanke-and-QE3, needing the latest update to decide whether tapering is now closer or further away. For me nothing has changed. Fed has goal if data keep improving, but retains the flexibility to change things if data disappoints, even hinting that even if employment came down as hoped, he could still change things depending on inflation. As I've said several times, spiel to remain accommodative the timetable that scares everyone is sure to change. Fed is just managing expectations with confusing talk to avoid bubbles.