Theme 1 - All Eyes on Bernanke's Friday Speech at Jackson Hole Symposium

  • Awaiting the Jackson Hole Symposium: 3 day event starting Thursday, highlighted by Bernanke's speech on Friday (10AM ET).
  • Will Fed move towards more stimulative measures after weak fundamental data?
  • Many economists said they expected Mr. Bernanke to explain what was in his policy toolbox while promising to use those tools if necessary.
  • QE3 not a magic bullet, considering the trend in underlying inflation of late.
  • Bernanke justified QE2 not by the need to boost US growth but as necessary to prevent the world's biggest economy from slipping towards deflation. Currently, underlying inflation is climbing.
  • QE brings down bond yields, but bond yields in the US are already at historic lows.
  • Recent market turmoil has seen the price of oil drop. Cheaper fuel prices should start to feed through into lower inflation over the coming months, boosting real incomes and hence providing a bulwark against a double-dip recession. This would be put into jeopardy were QE3 to unleash a fresh wave of speculation in the commodity markets.
  • The case for QE3 will look stronger in six months' time if the economy remains weak and inflation is coming down.

US Data This Week:

  • Tuesday: New Home Sales
  • Wednesday: Core Durable Goods Orders
  • Thursday: Jobless Claims
  • Friday: 2nd Version of US GDP, Bernanke Speech.

Theme #2 - Flash PMI's and German Sentiment/Business Climate a Good Follow Up to Weak GDP

  • After weak 2Q GDP data last week, this week gives us a look into Euro-zone economy during August, as well as sentiment data for Germany, from business heads, analysts, as well as consumers.
  • Monitor how European banks fare, following sharp sell-offs last week.
  • How much did ECB spend on bonds last week?
  • Monday: Manufacturing & Services PMIs (Germany & Euro-zone), ZEW Economic Sentiment (Germany & Euro-zone).
  • Tuesday: German Ifo Business Climate, EUR Industrial New Orders
  • Wednesday: German GfK Consumer Climate
  • Thursday: German Import Prices, EUR M3 Money Supply, Private Loans•

Theme 3 - UK Fundamental Bias Shifts South, Weakness Expected in This week's Data as Well

  • MPC meeting minutes: The Bank of England minutes showed that policymakers see a potential need for further bond purchases as weak jobs data offered fresh evidence that the economy is struggling to recover. The minutes also showed that the members voted unanimously to keep rates unchanged at 0.50%, as two policymakers had backed down from their earlier calls to raise rates.
  • Inflation rising: UK Inflation accelerated more than expected in July. The CPI)rose at an annual 4.4% after a 4.2% gain in June. Similarly, the Core CPI came out at 3.1%.
  • Disappointing job data: Britain's unemployment rate nudged upwards in the three months to June to 7.9%, while the number of people claiming jobless benefits (+37.1K) rose at the fastest monthly rate since May 2009.

UK Data This Week:

  • Tuesday: BBA Mortgage Approvals, CBI Industrial Order Expectations
  • Wednesday: Nationwide Consumer Confidence
  • Thursday: CBI Realized Sales
  • Friday: Revised GDP, Preliminary Business Investment (2Q), Index of Services

Theme #4 - Japan Ready to Intervene?

  • On Friday, Japan's Finance Minister Yoshihiko Noda said that the government would start considering what long-term preparations are needed to contend with the yen if it gets stuck at its currently high levels, according to Dow Jones Newswires
  • Friday, we hit a fresh record low in USD/JPY.
  • Back in March, multilateral intervention was effective in boosting the dollar back over ¥85 in the following weeks. But the greenback has gone back down as much as 11% since then. For 2011, the dollar has lost 5.9% against the yen.

Theme #5 - Sales, Trade, Company Profits Data from Canada and New Zealand

  • Monday: NZ Inflation Expectations
  • Tuesday: CAN Retail Sales, NZ Trade Balance
  • Wednesday: NZ Retail Sales (2Q), NZ Food Price Index,
  • Thursday: CAN Corporate Profits (2Q)

Nick Nasad
Chief Market Analyst