On the energy front, last week's data from the Energy Information Administration (EIA) was extremely bearish as it showed that crude oil inventories increased by 2.7 million barrels when analysts had expected a decline of 800,000 barrels. The build came as crude oil imports surged and domestic oil production reached its highest level since February 1999. At the same time, gasoline inventories jumped by 4.1 million barrels at the height of the summer driving season meaning gasoline demand was at its lowest level in 11 years. While the build in crude oil inventories was bearish for oil prices short term, it is the gasoline data that is most troublesome. The decline in gasoline demand corroborates the weak retail sales data that has been reported for the past three months through June – the longest stretch of consecutive monthly declines since the financial crisis period of 2008. The next few weeks may tell the tale for the balance of 2012.

Eoin Treacy's view The Fed will be cognizant of the challenge presented by uneven growth prospects and declining demand for energy. In the “no deflation here” camp both the Fed and the ECB have voiced their commitment to do whatever is necessary to promote growth.

Since the velocity of money remains in a downtrend, they are free to increase money supply aggressively without having to worry about an inflationary outcome, provided of course they can sanitise it when the pace of economic activity picks up. While there is obviously some reticence to engage in some of the more extreme quantitative measures pursued since 2008, it has generally been unwise to underestimate the resolve of central bankers in their attempts to counter deflationary pressures.