Listed below are the possible scenarios for this week by investment banks.
coming to the fore JP Morgan:
"As the July 30-31 FOMC meeting approaches, currency markets are behaving as if the June 19 one barely happened. Following a late-June surge, the trade-weighted dollar is unchanged over the past six weeks; benchmark currencies like NZD, MXN, KRW and ZAR are 2% to 5% higher; and FX volatility is a point lower (from 10.5% to 9.5% on VXY Global). Treasury yields are 20bp higher, but every spread product except EM local currency debt now trades tighter than in mid-June...While it is true that this month appears to be one of the least-liquid ones in a few years, trend reversals which are this sharp and this broad suggest that more is afoot... A quite significant dynamic is that several economies continue to narrow their growth gaps to the US, an outcome which would inevitability stabilise some pairs. A less-convincing dynamic is the notion that the FOMC is turning dovish (again), and thus the risks to fixed income are much diminished...Despite gyrations between Fed meetings, the baseline views are unchanged: selective USD strength in Q3."
next, Goldman:
"We expect the following changes to the FOMC statement. There will probably be at least a grudging recognition that growth has been soft. For example, the committee might downgrade the phrase that “household spending …advanced” in light of the recent weakness in real personal consumption expenditures, which we estimate grew only 1.2% in the second quarter. It is also possible that the committee will downgrade its assessment that the housing sector has strengthened further. However, Fed officials will want to avoid a message that they have significantly downgraded their expectations.
It is less clear whether they will explicitly hint at QE tapering in September. One way to do this would be to incorporate Bernanke’s phrase that the committee “anticipates that it would be appropriate to moderate the monthly pace of purchases later this year” or maybe even “soon.” Another way would be to say that the committee decided “at this meeting” to continue purchasing $85bn/month, with the implication that the next meeting may very well be different. If the committee decides to drop such a hint, it would probably offset the impact via a similarly subtle hint at a strengthening of the forward guidance. But it is also possible that they decide not to change anything at this point.
Our stronger view remains that Fed officials will strengthen the guidance when they do taper QE, whether or not they decide to foreshadow these moves this week. We still see two ways to do this. First, they could simply lower the 6.5% unemployment threshold, as the chairman hinted at the June 19 press conference. Second, they could make the unemployment threshold depend on inflation and/or labor force participation; thus, inflation below 2% or a further decline in participation would imply a threshold of less than 6.5%."
It is less clear whether they will explicitly hint at QE tapering in September. One way to do this would be to incorporate Bernanke’s phrase that the committee “anticipates that it would be appropriate to moderate the monthly pace of purchases later this year” or maybe even “soon.” Another way would be to say that the committee decided “at this meeting” to continue purchasing $85bn/month, with the implication that the next meeting may very well be different. If the committee decides to drop such a hint, it would probably offset the impact via a similarly subtle hint at a strengthening of the forward guidance. But it is also possible that they decide not to change anything at this point.
Our stronger view remains that Fed officials will strengthen the guidance when they do taper QE, whether or not they decide to foreshadow these moves this week. We still see two ways to do this. First, they could simply lower the 6.5% unemployment threshold, as the chairman hinted at the June 19 press conference. Second, they could make the unemployment threshold depend on inflation and/or labor force participation; thus, inflation below 2% or a further decline in participation would imply a threshold of less than 6.5%."
next, Credit Suisse:
FOMC: We expect the FOMC will incorporate more details about its asset purchase intentions into its July 31 policy statement with language in line with the strategy already outlined by Chairman Bernanke. The statement probably will also emphasize that the pace of future asset purchases is data dependent; no course of action is preset.
ECB: We don’t expect the ECB to introduce any innovation at next Thursday's meeting. President Draghi is likely to reiterate that policy rates will stay low or lower for an “extended period of time”.
BoE: The Bank of England meeting on Thursday will be the main focus this week. On balance we think the Bank may keep policy unchanged, but this is a very close call. Markets should be prepared for a dovish surprise. Forward guidance will be discussed and any details will be released at the Inflation Report on August 7. We expect some form of forward guidance to be implemented. As such, markets should prepare for the possibility of a dovish surprise.
NFP: We expect 185K for July nonfarm payrolls, keeping recent trends close to a 200K run rate.
ECB: We don’t expect the ECB to introduce any innovation at next Thursday's meeting. President Draghi is likely to reiterate that policy rates will stay low or lower for an “extended period of time”.
BoE: The Bank of England meeting on Thursday will be the main focus this week. On balance we think the Bank may keep policy unchanged, but this is a very close call. Markets should be prepared for a dovish surprise. Forward guidance will be discussed and any details will be released at the Inflation Report on August 7. We expect some form of forward guidance to be implemented. As such, markets should prepare for the possibility of a dovish surprise.
NFP: We expect 185K for July nonfarm payrolls, keeping recent trends close to a 200K run rate.
finally, BofA Merrill:
"After the last ECB meeting, we argued for upside Euro risks in the short-term. Although the immediate market reaction to the new ECB forward guidance was a decline of borrowing costs and a weakening of the Euro, we were concerned that the ECB would not follow with specific commitments and targets soon. Indeed, positive data surprises since then may have reduced the urgency for further ECB action. The Euro has also been supported by the continued improvement in the Eurozone’s current account balance and the decline of the ECB balance sheet compared with that of the Fed as the US continues with QE while Eurozone banks are repaying the LTRO. Recent flows, as investors cut their USD long positions reassured by Bernanke’s Congress testimony, have also been Euro positive. As we do not expect any policy changes in the next ECB meeting, the FX implications should be relatively limited, with some upside risks if Draghi focuses on recent improvements in data. Although we expect the message on forward guidance to remain the same, we believe that it is unlikely to be reinforced by more specific commitments, as recent data have been consistent with ECB projections. Moreover, if the ECB links forward guidance to downward deviations from its growth and inflation baseline, markets may believe that further ECB loosening is unlikely in the short term, which would be EUR positive. However, we would sell a Euro rally that brings EURUSD close to 1.35, as this would tighten monetary conditions and would threaten the already low ECB inflation projections."
Finally, a reminder and a look at the possible scenarios in this week's chart, the EUR/USD. Post written on July 23.
regards,
oscarjp
The information contained in this publication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinion offered herein reflects oscarjp-chrimatistikos current judgment and may change without notice. Users acknowledge and agree to the fact that, by its very nature, any investment in shares, stock options and similar and assimilated products is characterised by a certain degree of uncertainty and that, consequently, any investment of this nature involves risks for which the user is solely responsible and liable.
No comments:
Post a Comment