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The much-anticipated Jackson Speech did not deliver the confirmation for further QE that markets had sought. Nevertheless, after the initial disappointment, which helped the dollar recover, investors largely decided that the FOMC indeed edged closer to additional easing via conventional asset purchases. Our economists concur with this assessment, as there was a conspicuous lack of mentioning of other potential easing measures. Nonetheless, we note that September action is not a done deal either, and another strong unemployment report may yet stay their hand. Our economists expect a +135k gain for September, and the unemployment rate to stay at 8.3%. Otherwise, attention will like shift back towards Europe ahead of the ECB’s upcoming policy meeting. The market is not entirely fully expectant of the announcement of the modalities of the ECB’s new bond-buying programme, especially with other variables still in play: the German constitutional court decision and Spain’s position regarding an aid request to name a few. However, there are indications that a basic blueprint may be ready for the central bank governors this week, and at the very least Draghi will need to elaborate on their plans. In Asia, ahead of the market open we expect risk to remain subdued, especially as China’s manufacturing PMI registered a surprise 49.2 print, vs. consensus of 50.1. After two months’ worth of stimulus efforts, albeit not full-on, the lack of any rebound in activity may spur the government into action, lest the fears over structural issues intensify. Hesitation on the part of Bernanke regarding QE could also affect sentiment, though as Friday’s price action revealed, the jury is still out there on stimulus. Ahead on Monday, more PMI results are due, while SNB’s Jordan and ECB’s Draghi have speeches.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank