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Markets Brace for ECB, BOE, Bernanke and Obama; Australian Jobs Data Shows Net Losses

Risk aversion led equities lower in the Asian session after Australian jobs numbers came in lower than the estimates and markets braced for the combined event risk of the European central bank meetings today and speeches from the Federal Reserve Chairman (Bernanke) and President Obama.  This added uncertainty is keeping the EUR/USD at its lows of 1.4055-1.4100 as the Dollar improves and pushes the USD/JPY to 77.20-77.40.

Most of the attention today will be centered on the ECB policy meeting and press conference.  The balance of the evidence (a slowdown in business activity and declines in inflation forecasts) suggests that the ECB will back off from the hawkish bias that was seen earlier this year.  This, along with decreases in global growth expectations for the remainder of the year, is supportive of this possibility.

During the North American session, the attention will turn to the critical speech from President Obama as he tries to explain the lack of progress being made in the US labor market.  The Federal Chairman will also speak about the central banks forecasts for the coming quarter.  One potential surprise would be if Bernanke did anything to suggest new QE stimulus but this is unlikely to occur before the September FOMC meeting.  Any lack of optimism in these speeches will lead equity markets lower.

In the UK, industrial output for the month of July showed a slight improvement against expectations at -0.2% for the monthly number and 0.2% and for the yearly number.  This report tends to be very volatile but when taken in combination with other data (PMI, for example) suggests that overall growth is relatively unchanged on the year.

In Sweden, the Riksbank left its policy rate steady at 2.0%, in line with expectations.  There were changes to its GDP forecasts, however, as they moved up to 4.5%.  The bank’s 2012 GDP forecast was revised lower, to 1.7% from 2.2% previously.  All of these figures remain higher than the forecasts from the Swedish government.  Last, the Riksbank said they expect to continue tightening monetary policy, but at a slower rate.

The Australian jobs report showed that the national economy lost 9700 jobs for the month of August.  The unemployment rate increased to 5.3%, which is the highest it has been so far this year.  The data is significant in that forecasts for domestic demand are likely to be revised lower and lends strength to the RBA’s recent change to a neutral policy stance.  The main question going forward is whether or not the unemployment rate will remain at this level as any data suggesting levels around 5.5% will suggest that current interest rate levels are too high and changes in policy might need to be implemented.

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