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Draghi has set high expectations but nothing is set in stone

Date: Monday 03 Sep 2012

Draghi has set high expectations but nothing is set in stone

The month of September kicks off with lots of uncertainty as investors wish to know if and when Spain will request assistance from the European rescue fund ESM, which would precede any intervention by the European Central Bank (ECB).

There will be several bilateral meetings this week, such as Van Rompuy-Merkel on Monday, Monti-Hollande on Tuesday, and Van Rompuy-Hollande on Wednesday. Investors will follow those meetings in anticipation of the ECB monetary policy meeting on Thursday.

In the prior meeting, ECB President Mario Draghi established some very high expectations that now depend on a formal request from Spain as well as the German Constitutional Court’s approval of the ESM.

Before any coordinated efforts are made by ECB and the ESM, strict conditions will be placed so that bond purchases become more effective than before, when the ECB intervened in August of last year. The ECB is not expected to take any action until a country requests assistance and the ESM intervenes first.

On the other side of the Atlantic, the feeling is that expectations are cooling down for a new round of quantitative easing in the US.

The recovery of the housing market appears to be under way and the labour market will now be the key issue. The monthly US employment report will be released on Friday and will be likely be the key factor behind the Federal Reserve’s future decisions after Federal Reserve Chairman Ben Bernanke expressed his concern over the labour market.

No major revelations are expected out of the jobs report and therefore it will remain unclear whether the Fed decides to implement a new round of quantitative easing (or QE3) in the September 12-13th meeting.


Javier Flores,
ASINVER Investment Group

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