Bernanke’s speech offered the market virtually nothing to go on, even less, in fact than the very little the market was expecting. Was there anything worth reacting to?
The market really wanted something to happen today at today’s Jackson Hole speech from Fed chairman Ben Bernanke, but it was fairly clear that the consensus was rapidly moving to the idea that nothing specific would emerge, which indeed turned out to be the case. Still, there was the hope that a few new ideas might be thrown around that might give the market something to move on. Detail was thoroughly lacking…
Jackson Hole
Bernanke is playing his cards very close to his vest. One can’t help but imagine that some of the reason for this is the upcoming presidential election, as the polls suggest a very close call and because the one candidate (Romney) would clearly like to appoint someone else when Bernanke is up for reappointment in January 2014 (about a year before the Fed will supposedly be first considering a change of policy…!)
Regarding the snooze-fest of the speech itself – Bernanke didn’t announce any specific policy actions at this speech, but did say that he wouldn’t rule out further asset purchases. The latter was nothing new but perhaps enough to reassure some risk takers – at least that’s how it appears as risk appetite snapped back after the lack of concrete developments saw an initial sell-off. He spent considerable time defending the Fed’s policies thus far and the good that QE has done (in his view!).
Interestingly, however, Bernanke mentions that “QE may impair the functioning of some securities markets”. He also expended considerable energy, though, in fretting the slowness of the recovery and expressed “grave concern” over the stagnating labour market. It’s clear that the background message has not changed one iota – economy doesn’t perform = Fed prints money.
Recall that next week is full of important US data, which is perhaps more important than today’s speech in giving hints on when the Fed will move next.
Bottom line: I would rate this speech a mild disappointment to pro-risk expectations and would be surprised to see the market getting a strong new impulse to the upside beyond knee-jerk moves today and very early next week. Let’s not forget what lies in the pipeline (EU risks, US election/fiscal cliff and everything else we have discussed lately). It’s very interesting to note the very strong treasury market about 30-40 minutes after Bernanke’s speech. That may just be the specific mention of asset purchases in his speech, or it could be a sign that the market is looking for safe havens. The rest of today and the next few trading days give a better signal than the noise of the moment. Another stand-out is the gold market – which is strongly up and points to a belief in further debasement due to the eventual easing in the pipeline.
Looking ahead
Monday is world PMI day (with China jump-starting the day with its Saturday release of the official Manufacturing PMI). The figures will receive plenty of focus after the HSBC flash PMI for China in August was so weak and as production worldwide seems to be slowing rapidly. The HSBC number and the official non-manufacturing PMI for China will be released Monday.
As for the US manufacturing surveys, the US Chicago PMI out today was still in expanding territory at 53, but this territory tends to look better than the others and we have seen two ISM’s in a row at a hair below 50 despite the Chicago PMI still well above 50, and remember also the weak Empire and Philly surveys from earlier this month.
Recall that this is a three-day weekend for the US due to the Labor Day holiday on Monday, when all markets will be closed in the US.
Economic Data Highlights
UK Aug. GfK Consumer Confidence out at -29 vs. -27 expected and -29 in Jul.
Japan Aug. Markit/JMMA Manufacturing PMI out at 47.7 vs. 47.9 in Jul.
Japan Jul. Jobless Rate out unchanged at 4.3% as expected
Japan Jul. Overall Household Spending rose +1.7% vs. +1.2% expected
Japan Jul. National CPI fell -0.4% and ex Fresh Food and Energy -0.6% vs. -0.3%/-0.6% expected, respectively
Japan Jul. Preliminary Industrial Production estimated at -1.2% MoM and -1.0% YoY vs. +1.7%/+1.8% expected, respectively and vs. -1.5% YoY in Jun.
Germany Jul. Retail Saels fell -0.9% MoM and -1.0% YoY vs. +0.2%/+0.1% expected, respectively and vs. +3.7% YoY in Jun.
UK Aug. Nationwide House Prices rose +1.3% MoM and fell -0.7% YoY vs. +0.1%/-2.2% expected, respectively and vs. -2.6% YoY in Jul.
Norway Jul. Retail Sales out at -0.1% MoM and +2.7% YoY vs. +0.4% MoM expected and +7.4% YoY in Jun.
Norway Aug. Unemployment rate fell to 2.6% as expected and vs. 2.7% in Jul.
Euro Zone Aug. CPI estimate out at 2.6% YoY vs. 2.5% expected and 2.4% in Jul.
Euro Zone Jul. Unemployment Rate rose to 11.3% as expected and vs. 11.2% in Jun.
US Aug. NAPM Milwaukee out at 42.9 vs. 49.0 expected and 46.7 in Jul.
Canada Jun. GDP out at +0.2% MoM and +2.4% YoY vs. +0.1%/+2.2% expected, respectively and vs. +2.4% YoY in May
US Aug. Chicago PMI out at 53.0 vs. 53.2 expected and 53.7 in Jul.
US Final Aug. University of Michigan Confidence out at 74.3 vs. the preliminary 73.6 and 72.3 in Jul.
US Jul. Factory Orders out at +2.8% MoM vs. +2.0% expected
Upcoming Economic Calendar Highlights (all times GMT)
UK BoE’s Posen to Discuss Monetary Policy at Jackson Hole, Wyoming, USA (1710)
China Aug. Manufacturing PMI (Sat 0100)
Australia Aug. AiG Performance of Manufacturing PMI (Sun 2330)
China Aug. Non-manufacturing PMI (Mon 0100)
Australia Jul. Retail Sales (0130)
China Aug. HSBC Manufacturing PMI (Mon 0230)
John J Hardy,
SAXO BANK