Tracking [Upside|Downside] Economic Data Surprise - Pre-QE2 Update
Below is an updated visualization of the economic surprise tracker via the SocGen Policy Watch and Data monitor, which shows how since Jackson Hole, when Bernanke made it abundantly clear that QE2 is certainly on the table, the data has notably picked up. Which means that a green light for further monetary intervention will most certainly require a major gamble by the Census and BEA guys to report data materially closer to where it is in reality, and hope the market does not puke enough to offset any subsequent QE2 benefits. Of course, the market being "efficient" and "forward looking" has already foreseen all this. The bottom line here, however, as we pointed out previously: Bill Gross does not expect a September QE2 announcement. Which means one is not coming. All robots who are still confused, and trading with that expectation in Gallium Arsenide mind, will be disappointed.
Some commentary from SocGen:
Double-dip risks down since Jackson Hole The FOMC meets next week to decide on the next policy steps. The last meeting on 10 August proved very eventful as the Fed announced that it will reinvest MBS proceeds by buying Treasury debt. The action initially unnerved the markets which interpreted it as a sign of nervousness and desperation on the part of the Fed. Bernanke explained himself two weeks later in Jackson Hole, noting that the Fed was merely preventing an automatic tightening of policy which would have occurred otherwise. The Jackson Hole speech suggested that the Fed stands ready to do more if needed, but we saw no urgency for further action in Bernanke's words. It has been nearly three weeks since the Jackson Hole conference. Remarkably, that same day marked a major turning point in terms of negative vs positive data surprises. Prior to 27 August economic data was generally surprising on the downside and fuelling fears of a double dip and deflation. Since then, momentum has improved notably. The data still points to sluggish growth and stubbornly high unemployment, but there is no evidence that the economy may be close to contracting. Consequently, the markets have also repriced the risks around the economic scenario.