Ben failed to deliver. Will Draghi also disappoint those who are betting large on a big bond buying announcement by the ECB next week? Neither policy leader seems to have the political support to press ahead with the monetary stimulus plans they have in mind. To really understand how much support they have the market will have to wait until the second week of September. Many are now predicting that the 12-13 of next month will be the most important FX trading day of the calendar year. The Fedâ€™s next two day meet ends on the 13th and thatâ€™s the day the market gets to see if Ben and his QE3 advocates get the support they require. Draghi is in the same boat, also lacking political support. He too wants to launch a new program of bond buying to help Spain and Italy; however he lacks sufficient support within the euro-zone as a whole. Germany, the most important Euro creditor remains â€œleery of any plans to provide more aid.â€ On the September 12 a German court will rule on the legality of the two European bailout funds (EFSF and ESM). Both events should provide the biggest event risk of that week.
Below are some other highlights of the week:
- EUR: The single currency started the week supported outright and on the crosses again a tightly defined trading range.
- SEK: The Krona has been supported by stronger-than-expected retail sales data. The indicator surprised to the upside in July at +2.4%, y/y, with consensus set at +1.7%. This comes in the aftermath of the Swedish government upgrading its growth forecast higher last week. This will likely market the SEK as a â€œsafe havenâ€ against the EUR.
- GER: The Ifo data showed mixed sentiment amongst German manufacturers. The current assessment headline was almost unchanged at 111.2, but the expectations component fell from a revised 95.5 to 94.2 (lowest print in three-years). Suggests further undermining capital investment in the core euro area. Perhaps the ECB will need to act aggressively next week?
- WSJ: Reported that the ECB is considering flexible targets on bond yields. How? Policy makers would guide investors toward a target for government bond yields of peripheries by publicly communicating specifics about the amount of the bond buying it conducts and types, etc.
- GBP: UKâ€™s house prices fell by -0.1%, m/m in August, following the same drop seen in July. However, on a yearly basis it remains unchanged at -0.5% in August.
- EUR: The ECBâ€™s M3 release showed that ITL, IRE and Gr. reported higher deposits in July, on a seasonally adjusted basis. ESP on the other hand reported a -â‚¬74b decrease in deposits, well above the previous high of -â‚¬40bn.
- EUR: Der Spiegel reported that Germany would support a new EU treaty and that Chancellor Merkel is pushing for work on a draft to begin before year end.
- ESP: Spain conducted 3 and 6-month bill sales this week at significantly lower yields than the previous auctions. The yield on the 3-month has come down to +0.946% compared to +2.434% previously while the yield on the 6-month is +2.026% compared to +3.691%.
- CHF: The Swiss KoF surprised higher at 1.57 this month, and was revised lower from 1.43 to 1.41 in July. Analysts suggest that this was related to the weaker Q2 SECO confidence data.
- ESP: Spanish region of Catalonia requested an emergency +EUR5b credit line from Spain’s central government as the region struggles to refinance its debts. This summer, a +EUR18b public fund was set up by Madrid to aid its 17 autonomous regions. Catalonia represents one-fifth of the Spanish economy.
- FT: Greece is in talks with the EU Commission to establish several special economic zones offering tax breaks to attract investors and help reinvigorate Greeceâ€™s economy after five-years of recession.
- G7: Finance ministers have urged oil-producing countries to raise output to ensure the market is well supplied. They are ready to tap strategic oil reserves to offset rising prices that could hurt global growth.
- ITL: Italian retail sales unexpectedly rose in June, increasing +0.4% from the previous month in seasonally adjusted terms.
- GBP: UK money and credit data were slightly better than expected on balance this week. Mortgage approvals were up to 47.3k, a touch above consensus, while mortgage lending grew +Â£1.1b. However, consumer credit was weak.
- BoE: Data showed foreigners bought +Â£9.4b worth of gilts, following -Â£7b of sales in June. The UK, as an investment opportunity, is still seen as the â€œbest of a bad lot.â€
- PLN: Polish GDP grew +0.4%, q/q in Q2, below consensus for +0.5%. The Polish economy remains relatively more resilient compared to the other CEE members (HUF and CZK).
- GER: German unemployment rose +9k this month, above consensus for +7k, and a fifth consecutive increase. The total number of unemployed rose to +2.905m from an unrevised +2.876m print in July.
- HUF: Hungaryâ€™s â€œprematureâ€ -25bps rate cut to +6.75% signals credibility issues with the CBank. The â€˜dovishâ€™ stance seems driven by political issues. Investors are still waiting for a deal with the IMF.
- ITL: Italy returned to the market after a month-long absence with a new 10-year bond, sold at a yield +5.82%, alongside auctions of an existing five-year bond (+4.73%). Demand was relatively solid as Italy does not seem to be seen at risk of being bailed out as Spain does. With a successful Italian auction out of the way FI dealers will now have to focus on Spain which still has to come to market next week, in a relatively uncertain environment.
- NOK: The Norges Bank announced it will purchase +NOK500m per day in FX for the Government Pension Fund in September.
- GBP: UKâ€™s Gfk Consumer Confidence survey was at -29 in Augustâ€Ž, remaining unchanged from June.
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