Doldrums to end

This week should be the week in which global markets start to exit the doldrums period that they have been sat in for the past month or so following Mario Draghi’s pledge to do “whatever is necessary” to solve the European crisis. The main landmark this week is the Jackson Hole symposium in the US with some in the market believing this could be the opportunity for the Fed Chair to launch further quantitative easing into the US economy.

This is of course the place that QE2 was launched from last year and comes after a set of minutes last week that were more dovish than the market had originally expected. We do not think that this conference will see further easing from the Fed however and it will instead come at the scheduled September meeting.

The reasons for our thinking are 2-fold: Firstly, we get the latest Non-Farm payrolls announcement between the two events. This seems to be the main indicator that the Fed and the market is looking at, in our view erroneously, and they will wait on this to gauge whether the time is right. The data picture has remained broadly mixed and the lack of a really poor landscape will act as a delaying factor.

The second reason is that the September meeting comes with new forecasts for the US economy and an attached press conference to explain them. This would obviously give the Fed Chair a more ready platform for the announcement of any new measures.

While the weekend was fairly quiet on the news front (lions in Essex apart) the Asian session has been quite busy for once. This is mainly as a result of the Japanese government downgrading its forecasts and expectations of the economy. All facets of the economy were taken lower including the strong export sector on the basis of lower global aggregate demand.

Risk came a little lower in the session on the news but price action has been slight to open the week. Both Spain and Italy will try and get away debt acutions today; Spain is asking for bids in very short term debt while Italy’s is focused on more longer term money. Funding pressures have continued to weaken through August as thoughts surrounding yield caps and central bank intervention give investors slightly more confidence in the debt of the periphery. Further falls in yields or increased demand will see the euro improve as well.

Italy will also offer the longer 10 year benchmark bond at an auction on Thursday.

In accordance with our belief that the Fed should be looking at other data more than the NFP number we are looking for some good dollar movement from this afternoon’s consumer confidence and Richmond manufacturing numbers which are both at 15.00.

Indicative Rates Sell Buy

GBPEUR 1.2624 1.2651
GBPUSD 1.5765 1.5790
EURUSD 1.2473 1.2497
GBPJPY 123.75 124.02
GBPAUD 1.5203 1.5230
GBPNZD 1.9511 1.9541
GBPCAD 1.5614 1.5643
NZDUSD 0.8069 0.8090
GBPZAR 13.27 13.32
USDZAR 8.4162 8.4457
GBPPLN 5.1565 5.1841
EURJPY 97.94 98.22

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered

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