- US stocks closed unchanged – Asian markets are slightly lower
- The Shanghai composite remains near a three-year low as China is yet to recover
- Mixed signals from FOMC members ahead of Bernanke’s Friday speech
- Brent oil has fallen to USD112 per barrel
Quiet trading yesterday as markets await Bernanke’s speech on Friday and the UK markets were closed for summer bank holiday. Decent gains in Europe were followed by range-trading in the US.
Asian bourses are slightly lower led by losses in Japan after the Japanese government downgraded its assessment of the economy for the first time in 10 months. The consensus GDP growth forecast for the current quarter, as reported on Bloomberg, is now 1% q/q AR down from 2.2% in early June. The Bank of Japan meets on 19 September and expectations are building for further easing measures.
Two FOMC members spoke yesterday, Evans and Pianalto. Evans, the most outspoken dove, supports further easing such as QE3 and reiterated his call for the Fed to adopt a more formal rule on how to set monetary policy (e.g. keeping the policy rate at zero until unemployment falls below a certain threshold and as long as core inflation stays below a certain ceiling).
More interesting, however, were Pianalto’s comments as she is likely to be more of a median voter within the FOMC. She stressed that there are limits to what monetary policy can accomplish and said that while there are benefits to further easing the costs need to be evaluated; “it is possible that future large-scale asset purchase programs will yield somewhat smaller interest-rate declines than past programs” and it is possible that the Fed’s “presence in certain securities markets would become so large that it would distort market functioning.” We still expect Bernanke to sound soft on Friday but whether he will be able to persuade the FOMC to ease further already at the September meeting remains to be seen.
Brent oil fell almost 3 dollars yesterday taking the front contract to around USD112 per barrel. The sharp move lower does question the strong uptrend that has lifted oil by more than 20 dollar since late June. The tropical storm Isaac looks less likely to cause any lasting damage to oil facilities in the Gulf but remains a source of volatility.
To Read the Entire Report Please Click on the pdf File Below.