Bernanke speech is the focus for market watchers but fireworks unlikely

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The markets are very much fixated on the Federal Reserve chairman, Ben Bernanke’s, keynote speech tomorrow at Jackson Hole, Wyoming at the annual meeting of central bankers and economists. The interest is understandable, but Bernanke is unlikely to announce anything dramatic. The chatter about the meeting is almost an excuse for the current movements in the equity markets.

The last set of minutes from the Fed FOMC (Federal Open Market Committee) stated that the Federal Reserve stood ready to intervene further to underpin the American economy and so appears to give reassurance to the market bulls that the “Bernanke put ” is alive and well. The U.S. economy grew at an annualised rate of 1.7% rate between April and June – not too shabby when you compare the numbers versus Europe. But the future remains cloudy and, with a Presidential election looming, the politicians will no doubt be subtly pressurising the Federal Reserve to help deliver economic growth.

The latest housing data from Case-Shiller as well as the July non-farm payrolls employment data (with 163,000 jobs created) don’t seem too worrying. Yesterday’s “Beige Book “ report said that activity expanded gradually in July and early August across most regions and sectors in the United States, compared to the previous assessment of “modest to moderate.”- Six Fed districts with “modest” growth and three with “moderate” growth. The previous Beige Book showed three districts growing at a “modest” pace and five growing “moderately.” However, several of the 12 Fed districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, output or orders.

For those expecting an announcement of a third round of quantitative easing (QE3) on Friday, they may be disappointed. But for all the importance of the US economy, the real hand brake on the global economy remains Europe and whether Mario Drago, Merkel and Hollande can reach a compromise solution to back stop Spain, Italy and others is the more important factor. It is interesting that the ECB President Draghi has decided not to travel to Jackson Hole, underscoring that the action is more likely to be in Europe in coming days not Wyoming.

Contrarian investor UK

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