Draghi “workload” excuse disappoints markets

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The news that the Jackson Hole symposium starting Friday would be missing one particular central banker came as a bit of a disappointment to the market yesterday. Mario Draghi had been due to speak on Saturday, a day after Ben Bernanke gives his speech titled “Monetary Policy Since the Crisis”. The hope had been that given both were attending we would see some form of joint statement and possibly, joint intervention on the part of the Fed, ECB and other central banks. Alas, this is now looking unlikely.

The reason behind Draghi’s absence was explained as “work-load”. The initial disappointment took equities and the euro lower before rallying, as traders and investors took “work-load” as needing more time to formulate some sort of plan that will see the ECB buy peripheral debt. The next ECB meeting is Sept 8th and given the expectations that had been built up by Draghi’s “whatever it takes” comments a few weeks ago, the emphasis is for something large and powerful from the bank.

The major block to this is once again found in Germany. The ECB is more than likely inclined to argue that it will not buy European periphery debt unless the EFSF and the ESM, the two European bailout programs, do so first. This will not happen before Sept 12th when the German Supreme Court is due to rule whether the ESM is itself constitutional. If that vote does not pass then we are back to square one. The risk is definitely that the ECB underwhelms this market and risk once again slides, with the USD the likely beneficiary.

European bonds were mixed yesterday. We saw decent auctions from Spain and Italy on the shorter term stuff with regional banks the largest participants; they buy the debt in order to lodge it with the ECB in return for loans. The longer dated auction tomorrow of Italian 10yr money will not be as well demanded by local banks and the key will be just where the demand comes from.

The negative news yesterday came from Spain as the region of Catalonia requested EUR5bn worth of aid from the country’s regional financing fund, becoming the 2nd region to do so. Spain should move back into focus soon as pressure will once again increase on the country to request a bailout

In the US, consumer confidence slipped dramatically to the lowest level in 9 months. Although some things have been going in consumers’ favours (equity markets) other, more important factors (energy and oil prices) have increased. This will only increase the downward pressure on aggregate demand and depress economic output. The jobs component of the Richmond manufacturing number was also poor; a negative indicator for next week’s NFP release.

Italian retail sales and consumer confidence are due at 9am and 10am respectively, ahead of the second reading of US GDP for the 2nd quarter.

FX markets were quiet again yesterday and seem all the more happy to sit on their hands before the monetary policy juggernauts prompt them into some form of action; until then expect further sideways movement.

In other news, World First are gearing up to send a team out to Tanzania to work with Childreach International on their Futurebuilding project. We have 8 staff heading out in November to help on a school building project.

Indicative Rates Sell Buy
GBPEUR 1.2586 1.2614
GBPUSD 1.5796 1.5822
EURUSD 1.2535 1.2560
GBPJPY 124.06 124.35
GBPAUD 1.5231 1.5258
GBPNZD 1.9630 1.9661
GBPCAD 1.5616 1.5646
NZDUSD 0.8038 0.8058
GBPZAR 13.29 13.34
USDZAR 8.4064 8.4466
GBPPLN 5.1632 5.1903
EURJPY 98.46 98.72

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offer. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time.

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Draghi “workload” excuse disappoints markets

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