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Developed Macro: Markets After Bernanke

Crédit Agricole via eFXnews

The release of FOMC minutes and Bernanke’s speech were the two key events overnight. Instead of more clarity, although not entirely unanticipated, the minutes reflect divided views of FOMC members/participants on the timing of tapering.

The market initially took a step backward from the consensus recently built around Fed’s tapering in September. Later on risk appetite was boosted by Bernanke’s comments that highly accommodative monetary policy is needed for the foreseeable future and the unemployment rate may be overstating the job market’s health.

Reaction in the US Treasury market has been relatively muted but it is more magnified in the FX market where the USD has lost ground against most currencies.

For the day ahead we see Bernanke’s words keeping sentiment supported and the USD under pressure whereas the key event to watch today will be the Bank of Japan policy decision.

The European calendar today is full of second-tier data releases. HICP inflation in France, the only major country where no flash estimate is released, is expected to rise modestly, from 0.9% to 1.0% YoY in June. The same pattern is likely to be observed in Ireland. Meanwhile it should be no surprise that Greek unemployment rate is forecast to rise further in April, albeit at a slower pace, with the hope that tentative stabilisation can be achieved by the end of the year.

As a result there should be much more interest in any comment by ECB officials scheduled to speak today, including Weidmann and Coeuré, as well as on the ECB’s monthly bulletin to be released at 09:00 GMT. While we think the ECB is unlikely to give a clearer guidance on its forward guidance for now, the monthly bulleting is always interesting in terms of the topics being covered.