As the calendar turns to October and the 4th quarter begins investors have a number of themes that will play out that will drive the capital markets. Central bank activity could play a large role as divergent paths for the Fed, ECB, BOJ and PBOC begin to materialize. For the Fed, they have signaled that they want to raise rates and plan on raising rates at some point in 2015. The ECB on the other hand has an underlying problem with inflation. Growth appears to the main story for both Japan and China.

Inflation is Negative

During the last week of September, the Eurozone reported inflation figures which unfortunately were softer than expected. As Eurozone headline inflation falls back into negative territory, speculation of an expansion of the ECB's QE program is rising. So far Draghi is taking a wait and see stance and with core inflation actually trending higher, labor markets stabilizing, wage growth picking up and credit conditions also improving it is not hard to see why he is using this tact.

However, data may serve as a justification for additional easing, but ultimately psychology and market sentiment is likely to play a bigger role. With exceptionally easy policies quickly becoming the norm, Draghi may feel he has little choice but to comply with market pressure, which highlights the dilemma global central banks are facing as markets remain reliant on ongoing stimulus.

Eurozone headline inflation has dropped back into negative territory with a -0.1% year over year rate in September. Not a total surprise and driven by the combined effect of lower energy prices and a slightly stronger Euro, which advanced on a trade weighted basis in September. Energy prices dropped 8.9% year over year in September, a further acceleration in the pace of decline from the -7.2% year over year in August. Food and services price inflation meanwhile accelerated slightly and core inflation excluding the most volatile items, remained unchanged from August at 0.9% year over year.