Positioning For Bernanke
Dollar selling continued overnight in the wake of Monday’s soft US retail sales report, and precautionary closure of short risk positions seems to be the order of the day ahead of Fed Chair Bernanke’s Senate testimony. Potential risks to the dollar should not be dismissed entirely, but those looking for clearer QE hints will likely be disappointed. Besides, if additional easing is on the Bernanke’s mind we see his speech at Jackson Hole on August 31 as a more likely forum for declaring his intentions. RBA minutes released overnight produced little in the way of fresh insight beyond what the policy statement already revealed – the Board seemed pleasantly surprised with a modest improvement in the domestic growth outlook and this was enough to keep the cash rate on hold. Although the US retail sales report served as a reminder that global risks are not confined to Europe, the Empire State manufacturing index (7.4) threw up a positive surprise, but even this was tempered by the soft result for new orders (-2.7), the lowest since September 2011. The IMF’s latest global economic assessment did its best to flag the key risks ahead. Beyond the expected downward revision to the 2013 global growth estimate from 4.1% to 3.9% were warnings that (i) “the most immediate risk is still that delayed or insufficient policy action will further escalate the Euro area crisis”; (ii) failure to deal with the US fiscal cliff issue would elevate the “potential for a significant adverse market reaction”; and (iii) China faces the “risk of a hard landing” where investment spending slows sharply given overcapacity in a number of sectors. It is certainly difficult to dismiss such scenarios, which feed into our broader view that the US dollar and yen will continue to be the preferred ‘safe havens’ in the G10 space.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank