In Waiting Mode
EUR managed to stay above 1.25 level overnight amid thin markets, despite a soft August German IFO report which showed the Current Assessment index fall marginally to 111.2 while Expectations index dropped to 94.2. The weak Chinese data yesterday continued to weigh on AUD taking EURAUD to a six-week high of 1.206 during New York hours. ECB Executive Board Member Asmussen noted that ECB staff are “still working” on the details of the bond-buying program, after which the Governing Council will discuss the various options in its policy meeting on September 6. He added that the new program will also address the “seniority concerns”. Given that investors are expecting the details of the plan to be laid out in the September 6 meeting, any prospect of another ECB press conference lacking in specifics could cap EUR recovery in the next two weeks. EU President Van Rompuy is scheduled to meet Spanish Prime Minister Rajoy ahead today at 11 AM (GMT) where they are expected to discuss measures to lower the high borrowing costs of the Spanish government. Spanish 10y yields traded above 6.3% overnight. French President Hollande called for quicker implementation of the June EU Summit accord and noted that the “Euro decisions” must be completed by October 18, the next EU summit date. In the US, more dovish talk from the Fed speakers continued with Chicago Fed President Charles Evans calling again for ‘open ended bond purchases’ to boost the economy. Cleveland Fed President Sandra Pianalto said the economic recovery remains “frustratingly slow” and “large-scale asset purchases can be effective”. Pianalto, a FOMC voting member this year, forecasted the economy will probably grow by 2% in 2012 while the unemployment will remain above 7% through 2014. Heading into the Jackson Hole symposium on August 31, the ‘QE talk’ should keep USD in check. Though we do not expect Fed Chairman Bernanke to give complete clarity on policy, beyond what was highlighted in the August FOMC minutes, his update on economic outlook could offer further clues on policy action in the next FOMC meeting on September 13.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank