This week; a big week for the markets. Last week Bernanke somewhat signaled the Fed is ready to ease again, most likely buying more long dated treasuries and increasing the purchases of mortgage-backed securities. When will the Fed actually move? Presently the bond and stock markets are already beginning to discount an easing move as interest rates have fallen 30 basis points since the recent sell-off three weeks ago (10 yr note). Mortgage rates down 20 basis points. This week there are a number of key data points that will either confirm an easing move at the Sept 13th FOMC meeting, or hold off until the Oct meeting. Depends a lot on what this week’s data shows us. The two ISM August reports on manufacturing and services lead right into Friday’s August employment report. Stronger than expected data will diminish the outlook for easing in Sept; weaker will increase the likelihood of easing in Sept.
Also this week the ECB will meet on Thursday; it has been three years of dealing with the incessant talk and not very much accomplished. Based on past performances from the EU a betting man would bet the outcome of the meeting will not reveal anything of consequence, just more hope and frustration for global markets. Not until Sept 12th when the German high court will rule on the legality of ECB buying sovereign debt. In the meantime and since the beginning of the EU collapse Germany still holds the cards, unless Germany will back anything suggested by the ECB, IMF or the EU has little chance of being implemented.
This week markets may become volatile pending the data and especially August employment on Friday.
TBWS