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ECBâ€™s Trichet Removes Tightening Bias from Latest Policy Statement; Euro Drops Below 1.39 Risk sentiment started to level off overnight as equity markets are essentially unchanged from the previous session. Currencies are continuing recent trends with the EUR/USD still falling at 1.3880-1.3930 while the USD/JPY tries to inch higher at 77.40-77.60. Chinese inflation data (CPI) for the month of August was the most central macro release and matched the market consensus. Other headlines focused on US President Obama speech in front of congress which described the implementation of a new jobs plan valued at 447 billion Dollars. This amount was more than most of the market was expecting but some of the specifics are likely to have trouble passing through the mixed congressional votes. Some analysts had suggested Obama would look to enact measures for repatriating foreign earnings for US companies but this did not materialize in the speech. Yesterdayâ€™s ECB press conference was more negative in tone (compared to the previous policy announcement) as the ECB President (Trichet) continuously cited potential downside growth risks. The language referring to upward pressure in inflation was removed from the statement, so now we can assume that the ECB is no longer in tightening mode. This change in stance should be moderately supportive for regional equities and if we see further declines in Eurozone macro data, markets will start to factor in rate cuts as a very real possibility. Federal Reserve Chairman (Bernanke) also gave a widely-watched speech but the language was little changed from what was seen in Jackson Hole last month. There was no mention of additional QE stimulus, which is not surprising given the proximity of the next FOMC meeting. Most of the attention will now move to the G7 meeting to be held this weekend. Markets expect the main topics to be the downside risks to global growth and the potential contagion effects of the EU sovereign debt crisis. Another possibility would be discussion of joint interventions in the currency market, but very few analysts are forecasting this will actually happen. In England, the BoE kept interest rates steady (in line with expectations) and no new changes were made to the current asset purchase program. The minutes from the meeting will get special scrutiny as markets look to assess the individual opinions of MPC board members. The minutes will be released in two weeks and the most market moving information will come from any discussions for additional QE.
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Published on Sep 8, 2011
Risk sentiment started to level off overnight as equity markets are essentially unchanged from the previous session. Currencies are continu...