Sentiment was mixed yesterday as encouraging US data diminished expectations of further QE by the Fed in the near-term. Yet, investors still hope for some indications from Chairman Bernanke at the Jackson Hole meeting. In the Eurozone, German Chancellor Merkel had a meeting with Italian PM Monti. The two disagreed on whether a bank license should be given to the ESM. Meanwhile, ECB President Draghi hinted that the central bank would need to implement further non-standard measure to stimulate the economy. Wall Street climbed higher but the volume contracted markedly. The DJIA gained +0.03% and the S&P 500 added +0.08%. In the commodity sector, the front-month WTI contract retreated as Hurricane Isaac failed to cause destruction on oil facilities in the Gulf of Mexico. Gold was also pressured on profit taking and strength in the US dollar.

Few surprises were delivered in the meeting between Merkel and Monti. Merkel beleived that the reforms being carried out by Italy "will bear fruit" and stated that the market should "approve the ability to cooperate within the Eurozone over the next months" However, Merkel also reiterated her opposition against granting a banking license for the ESM as it is incompatible with EU law. Investors were also concerned about when the ECB would add more stimuli. Regarding this, ECB President Draghi said "it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools". Yet, it appears that the market does not expect the ECB would set a yield cap for Spanish and Italian debt.

The US data was encouraging. GDP growth was revised higher to +1.7% in 2Q12. The flash estimate was +1.5%. The latest Beige Book unveiled that economic activity improved "gradually" in most regions and "most Districts indicated that retail activity, including auto sales, had increased since the last Beige Book report". Meanwhile, pending home sales climbed +2.4% m/m in July, following a -1.4% drop in the previous month.

On the dataflow, the Eurozone final confidence data probably weakened a tad in August. While consumer confidence probably stayed at -24.6, economic confidence might have dipped to 87.5 from 87.9.Industrial confidence and services confidence are also expected to have dropped modestly from flash estimates. US initial jobless claims might have eased to 370K in the week ended August 25, down from 372K in the previous week. The focus is of course the Jackson Hole Symposium, especially Bernanke's speech which might give indications on the Fed's next move to stimulate economic recovery.