Bernanke statements lift US mkt; easing options remain open

By Gautam Broker, Research Analyst at CNBC-TV18
 
Federal Reserve chairman Ben Bernanke commentary was along expected lines. There was no immediate action but easing options remain open by the Fed.

Markets disappointed initially, but rallied later after Bernanke strongly defended previous easing moves.

Bernanke says easing to date has provided measurable benefits and costs of QE-type actions "manageable".

Market interpretation: Chances of QE on September 13 is not too high; but bar for further easing remains low.

Extension of forward guidance is possible on September 13; Fed may tweak language to ‘low rates until 2015’ (versus 2014 now).

Fed decisions will be predicated on data: Employment situation on Friday, ISM Manufacturing and services data crucial before September 13

Agencies reported that German Central Bank chief has considered resigning several times in recent weeks.

German government has been dissuading him from resigning; he’s decided to stay on for now and opposed ECB moves.

German economy minister supported central bank chief; he said needs economic reforms instead of bond buying.

Market is interpreting stiff opposition as a push for highly conditional bond buying if ECB does manage to launch a program.

Spanish PM says doesn’t see the need for additional conditions; waiting for details from ECB

US data was mildly positive: US Factory orders went up 2.8% MoM as against market expectation of 2%  

Consumer sentiment was 3-month high at 74.3 in August as against 73.6 MoM while expectations were at 73.5; Chicago PMI was at 53 as against 53.7 MoM, which was inline with estimates.

US markets at close on Friday: Dow Jones gained 0.7% at 13,090.8. S&P 500 Index was up 0.5% at 1,406.6 while Nasdaq rose 0.6%

US last week: Dow Jones went up 0.5% while S&P 500 Index was down 0.3% and Nasdaq Composite fell 0.1%.

US markets in August: Dow Jones moved up 0.6% while S&P 500 Index was up 2% and Nasdaq Composite rallied 4.3%     

European markets at close: DAX and CAC climbed 1% each. FTSE was down 0.1%. Spain surged 3.1% and Italy gained 2.2%

US markets are shut today on Labour day

Currencies

Volatility was seen in currencies around Bernanke's speech.

Euro rallied sharply initially, which hit a 2-month high at around 1.264 to the US dollar on Friday.

But it gave up gains as speech progressed.

Dollar Index saw a 3-month low of 80.96 on Friday, which is now recovered to 81.3 today.

Commodities

Commodities found support from Bernanke statements and positive data.

Brent crude rose 1.7% on Friday and settled at USD 114.5 a barrel while WTI crude was up 2% at USD 96.5 a barrel

Gold was inching closer to USD 1700 an ounce, which was at USD 1690 an ounce today morning.

For August: CRB Index surged 3% as Brent crude gained 9% and gold shot up 5%  

What to watch out for

China Services PMI

China HSBC Manufacturing PMI 

Eurozone, Germany, France, UK, Italy PMI’s