Markets Brace for ECB, BOE, Bernanke and Obama; Australian Jobs Data Shows Net Losses
Risk aversion led equities lower in the Asian session after Australian jobs numbers camein lower than the estimates and markets braced for the combined event risk of theEuropean central bank meetings today and speeches from the Federal Reserve Chairman(Bernanke) and President Obama. This added uncertainty is keeping the EUR/USD at itslows of 1.4055-1.4100 as the Dollar improves and pushes the USD/JPY to 77.20-77.40.Most of the attention today will be centered on the ECB policy meeting and pressconference. The balance of the evidence (a slowdown in business activity and declines ininflation forecasts) suggests that the ECB will back off from the hawkish bias that wasseen earlier this year. This, along with decreases in global growth expectations for theremainder of the year, is supportive of this possibility.During the North American session, the attention will turn to the critical speech fromPresident Obama as he tries to explain the lack of progress being made in the US labor market. The Federal Chairman will also speak about the central banks forecasts for thecoming quarter. One potential surprise would be if Bernanke did anything to suggestnew QE stimulus but this is unlikely to occur before the September FOMC meeting. Anylack of optimism in these speeches will lead equity markets lower.In the UK, industrial output for the month of July showed a slight improvement againstexpectations at -0.2% for the monthly number and 0.2% and for the yearly number. Thisreport tends to be very volatile but when taken in combination with other data (PMI, for example) suggests that overall growth is relatively unchanged on the year.In Sweden, the Riksbank left its policy rate steady at 2.0%, in line with expectations.There were changes to its GDP forecasts, however, as they moved up to 4.5%. The bank’s 2012 GDP forecast was revised lower, to 1.7% from 2.2% previously. All of these figures remain higher than the forecasts from the Swedish government. Last, theRiksbank said they expect to continue tightening monetary policy, but at a slower rate.The Australian jobs report showed that the national economy lost 9700 jobs for the monthof August. The unemployment rate increased to 5.3%, which is the highest it has been sofar this year. The data is significant in that forecasts for domestic demand are likely to berevised lower and lends strength to the RBA’s recent change to a neutral policy stance.The main question going forward is whether or not the unemployment rate will remain atthis level as any data suggesting levels around 5.5% will suggest that current interest ratelevels are too high and changes in policy might need to be implemented.