August 22 - As speculation grows over the timing of the U.S. Federal Reserve winding back its stimulus programme, Europe worries about the potential impact on the region's fragile recovery. Joanne Nicholson reports.
Europe is now waiting to know when, not if the U.S. Federal Reserve will taper back its injections of cheap cash into their economy. Jonathan Schiesel is from investment house Ashburtons SOUNDBITE (English) JONATHAN SCHIESEL, EQUITIES ANALYST, ASHBURTON "We believe the tapering will start in September which seems to have been confirmed yesterday. Of course we don't know the scale of the withdrawal of QE and a timeframe yet. But we've been saying for some time that the normalisation process will start in September and extend into sometime next year." But there are concerns that if there's too much, too fast, it could shake the euro area's already rocky recovery. SOUNDBITE (English) JONATHAN SCHIESEL, EQUITIES ANALYST, ASHBURTON "The periphery still has a lot of underlying problems and you could argue that the periphery really doesn't need rising interest rates so that remains a worry for us but obviously the core, Germany could cope with the rising interest rates." The Fed's bond buying programme has focussed on mortgage backed securities and treasuries. The question now is which will be scaled back more. Some expect it will be treasuries so as not to upset the fragile housing market. Many analysts think the Fed's quantitative easing programme has caused a bubble in asset prices, while others think the rise is justified. One thing's certain, though. Investors will be now looking around for other safe havens. And it's possible that flight from emerging markets could drive investment towards developed economies. With the timing of tapering hinging on the health of the U.S. economy, all eyes will be on August's job figures.