Brace Yourselves
Risk assets traded on a firm tone ahead of Bernanke’s keynote speech at the Jackson hole. An article in the Financial Times suggesting that the ECB may be granted greater authority over Eurozone banks under a new European Commission plan provided some support, though we believe that a large degree of the rally was driven by month-end related flow. Earlier euro-negative headlines were soon shrugged off as the dollar sold-off aggressively across the board. The stage is now set for Bernanke’s speech to kick off the Jackson Hole Conference. We suspect he will flag all the potential easing options, but stop short of offering any clear guidance on what, if anything, the Fed will deliver on September 13. If the recent minutes are any indication, one risk would appear to be an extension of the forward rate guidance, though the absence of QE (our central view) would likely trigger a USD relief bounce. On that note, Bank of England MPC Member Posen revealed overnight that the Fed is interested in the BoE’s novel “funding for lending” scheme, which seeks to promote bank lending to the real economy. ECB Executive Board member Couere has responsibility for ECB market operations, and comments from him later today could shed some light on what form the ECB’s bond purchases may take. NOK was the standout under-performer in the European session after a brace of negative headlines. Norges Bank announced that it will purchase NOK500 mn worth of FX per day (on behalf of the pension fund) in September (up from NOK350 mn earlier). Due to the structure of the FX purchases mechanism, the volume of NOK-selling has traditionally been skewed to the end of the year, so a period of heavier monthly NOK-selling is possible. July retail sales fell 0.1% m/m vs +0.4% cons, -1.1% last; +2.7% y/y vs +7.4% last.
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