US Recovery Still on Shaky Ground…..
After the final bank holiday weekend of the year, UK markets are playing catch up with their overseas counterparts. It was a whip-saw session for markets on Friday night in reaction to the much anticipated speech from Fed Chairman Bernanke at the annual Kansas City Fed conference in Jackson Hole, Wyoming. Ultimately the speech gave no real direction to the FX markets, Bernanke reaffirming the Fed’s commitment to do ‘whatever it takes’ to support an economic recovery, but stopping short of committing the US central bank to another round of quantitative easing. The news sent the Dollar higher against the Euro and Sterling, although the greenback weakened somewhat against the Yen as equities took the news badly, turning negative in the aftermath of these remarks. Overall, Bernanke provided get a long overview of why we should be confident that the US will grow in 2011, and a list of excuses as to why growth has been so bad thus far this year. Though he didn’t signal any change in policy, with his remarks viewed as hawkish by the market, the speech clearly set the foundation for additional easing should conditions deteriorate. Clearly the US economic recovery remains on shaky ground, and Friday’s non-Farm Payrolls release could be pivotal in the direction that the Fed takes.
Yesterday saw a significant reversal of Friday night’s move in currencies, with some disappointment in Japan after the BoJ increased its bank-loan programme by ¥10 trillion to ¥30 trillion yesterday. Markets were hoping that the BoJ would be more aggressive, and that disappointment was expressed by a 3.6% fall in the Nikkei. The FTSE is playing catch-up after yesterday’s Bank Holiday so it looks especially vulnerable this morning. With the BoJ announcement unable to prevent dollar-yen from falling back to ¥84, the foreign exchange market is now preparing for currency intervention to weaken the yen.
For the UK, A relatively quiet week for UK data sees the MPC meeting pushed into next week. With revised Q2 GDP having been released last week, the only significant release is the final estimate of July M4 money growth and related lending data. Credit growth is expected to remain muted as households continue to prefer to pay down debts rather than borrow more. Survey data include both the Hometrack and Nationwide August house price surveys, which should confirm the new trend in falling house prices as well as August consumer confidence and manufacturing and service sector PMIs. Consumer confidence should have rallied, though there could be some further easing in the rate of PMI expansion.
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