U.S stimulus conjecture will remain a key element to U.S dollar moves and risk currencies alike with Friday’s non-farm payrolls a critical piece of the puzzle ahead of the Fed’s next policy meeting over the September 12-13. The U.S economy is expected to create 130,000 new jobs in August from 163,000 in July with the official unemployment rate expected to remain steady at 8.3 percent. Also in the frame this week will be health of U.S manufacturing with a final revision to the Markit PMI index and ISM Manufacturing Index on Tuesday. The usual pre-nonfarm build-up with see employment gauges such as the ADP private payrolls and weekly jobless claims act as a precursor to the main event on Friday. In light of Bernanke’s failure to provide explicit detail on the possibility of near-term stimulus in his Jackson Hole appearance, the week ahead will see stimulus conjecture remain a primary driving factor with top-tier data points scrutinized in the context of how this will impact the Fed’s next move. True to recent form, in his speech Bernanke once again displayed a willingness to embark on further non-traditional policy initiatives, without prompting a material shift in expectations. It is clear, however, Bernanke believes the pace of economic growth remains unsatisfactory, stating “stagnation of the labor market in particular is a grave concern” which could “wreak structural damage on our economy that could last for many years.” The U.S dollar index which measures the value of the greenback against six of its most traded counterparts fell -0.45 over the week.
This week we will finally learn exactly what Mario Draghi means when he said the ECB will do “whatever it takes” to get the euro-region back on the straight and narrow and critically, if it’s enough to get Spain to forgo its sovereignty and agree to a memorandum of understanding in exchange for financial assistance. What we do know is the ECB may intervene in debt markets with a focus on shorter-term maturities, but only in conjunction with Europe’s rescue fund, the European Financial Stability Facility (EFSF) or the pending European Stability Mechanism (ESM). To qualify, a country must first seek financial aid and meet "strict and effective conditionality in line with the established guidelines." This will see any measures outlined viewed in the context of just how likely Spain will be to come to the party and officially ask for a sovereign bailout, and more broadly if it’s enough to stop the rot across Europe’s periphery. Spanish Prime Minister Mariano Rajoy has been reported as saying "If I believe it is good for Europe as a whole, for the euro, and for Spain, I will do it, and if not, not." Spain has already received a bailout for its ailing banking sector, but has not yet joined the likes of Greece, Ireland, and Portugal by seeking a sovereign bailout.
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