Wednesday 5 September 2012

Tomorrow Is Another Big Event Risk Day - Draghi Talk

Surprisingly, Friday's Bernanke speech at Jackson's Hole didn't move the market all that much overall.  The key points made were along the lines of where the market expected.  Gird yourself for big day #2...Mario Draghi's press conference on Thursday where he's expected to outline or announce what bond buying program the ECB will (or will not if Merkel has her way with it) buy.

Following that is several more big days... (From Marketwatch.com)


  • Thursday, Sept. 6: Mario Draghi’s press conference. The president of the European Central Bank will be locked in a room with a hundred or so journalists, each eager to extract details on his plan for the ECB to buy the bonds of troubled European sovereign nations such as Italy and Spain. And in the meeting of the central bank’s governing council that precedes this media event, the ECB’s decision makers might actually vote on the initiative. Over the past month, European bond markets have rallied--along with the euro and various risk-sensitive assets--as Mr. Draghi has dropped hints about the plan. But although on Monday he told European lawmakers that the ECB already has the authority to buy bonds of up to three years duration, the plan doesn’t enjoy unanimous support within or outside the central bank. Jens Weidmann, the president of the powerful Deutsche Bundesbank, is almost openly hostile to it and a German constitutional court ruling next week (see below) could derail the program. The slightest sign that these obstacles have stalled the bond-buying plan, and the euro could lead a lot of “risky” currencies into a nosedive.
  • Friday, Sept. 7: U.S. nonfarm payrolls report. This seminal piece of data will be the last piece of the economic jigsaw before the Federal Reserve Open Market Committee decides on whether to deliver more monetary stimulus. The apparent lack of a consensus on the FOMC (see below) makes for an even more important jobs report than normal. After employers added a surprisingly large 163,000 new jobs in July, the market is looking for an August readout of 125,000. Anything higher and the dollar could rally sharply against most of its counterparts as traders would downgrade expectations for Fed action next week.
  • Wednesday, Sept. 12: German constitutional court ruling. On what will be a nerve-wracking day for euro traders, the highest court in the euro zone’s most important creditor country is due to rule on the constitutionality of the zone’s two bailout vehicles, the temporary European Financial Stability Facility and the permanent European Stability Mechanism. If the constitutional court were to render the EFSF/ESM illegal, it would introduce chaos into the central infrastructure around which the monetary union’s 17 member nations have built their debt crisis resolution strategy. Even if the court granted approval but conditioned it on the German parliament overseeing the funds’ activities, this could add unwanted uncertainty to the process. Mr. Draghi’s plans to buy Italian and Spanish bonds would suffer, because he insists that countries must first seek financing through these bodies before the ECB buys their bonds.
  • Wednesday, Sept. 12: Dutch elections. A victory for the Dutch Socialist Party, which was until recently leading the polls, would upend a German-led coalition of euro-zone countries that favor fiscal austerity as a solution to the region’s troubles. It would add more political uncertainty to the euro crisis.
  • Wednesday, Sept. 12: European bank regulations proposal. On this jam-packed day, the European Commission will release its proposal for bank regulatory reform in which it is expected to push for sweeping oversight of euro-zone banks by the ECB. The problem again is Germany, which wants to retain oversight of its small lenders. Yet another source of intra-euro-zone tension.
  • Thursday, Sept. 13: FOMC’s two-day meeting concludes. Will the Fed launch a third round of “quantitative easing” or not? Fed Chairman Ben Bernanke suggested last week that he would back another round of “QE” bond-buying. But other committee members, including potential swing voter Atlanta Fed President Dennis Lockhart, seem lukewarm to the idea. There could be a disappointment selloff in both stocks and risky currencies if the Fed holds pat, but there’s also

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