Europe took August off. Today, it is America's turn, as the country celebrates Labor day, although judging by recent trends in the new 'Part-time" normal, a phenomenon we have been writing about for years, and which even the NYT has finally latched on to, it would appear the holiday should really be Labor Half-Day. After today the time for doing nothing is over, and with less than one month left in the quarter, and trading volumes running 30% below normal which would guarantee bank earnings in Q3 are absolutely abysmal, the financial system is in dire need of volume, i.e. volatility. Luckily, things are finally heating up as the newsflow (sorry but rumors, insinuations, innuendo, and empty promises will no longer cut it) out of various central banks soars, coupled with key elections first in the Netherlands and then of course, in the US, not to mention the whole debt-ceiling/ fiscal cliff 'thing' to follow before 2012 is over. So for those who still care about events and news, here is the most comprehensive summary of the key catalysts over the next week and month, which are merely an appetizer for even more volatile newsflow in October and into the end of the year.
From SocGen and DB:
Data wise the key release will be the ISM manufacturing on Tuesday and the payrolls/unemployment report on Friday, the latter will be critical to any FOMC decision next Thursday. In Europe, we will get the final PMI manufacturing revisions today and the same for services on Wednesday. Euroland PPI (Tues), Euroland retail sales (Wed), Euroland Q2 GDP second estimate (Thurs), German factory orders (Thurs), and German/French trade data (Fri) are the other key releases.
Key events in September:
- 3 September (today): EU parliament debates Banking Union.
- Early September: Troika leaders arrived in Athens to begin the final phase of the review programme but it may take a few weeks before a report is ready.
- 4 September (tomorrow): ISM manufacturing.
- 4 September (tomorrow): Italian PM Monti to meet French PM Hollande in Paris, EU’s Van Rompuy to meet Mrs. Merkel in Berlin, Greek Finance Minister Stournas to meet German Finance Minister Schaeuble in Berlin.
- 5 September: EU’s Van Rompuy to meet PM Hollande in Paris.
- 6 September: ECB Governing Council policy meeting.
- 6 September: Spanish bond auction, Mrs Merkel to meet PM Rajoy in Madrid.
- 7 September: EU’s Van Rompuy to meet PM Samaras.
- 7 September: August non farm payrolls.
- 8 September: PM Samaras to give annual economic address at Thessaloniki InternationalFair.
- 11 September: EC proposal on common bank supervision expected to be released.
- 12 September: German constitutional court ruling on the ESM. DB economists think chances of German veto are low but the Court might again strengthen German Parliament’s prerogatives as regards to future Euro integration. Germany is last toapprove and once approved the first instalment of capital needs to be paid by ESM members within 15 days after treaty comes into force.
- 12 September: Dutch election - Support for the Socialist Party (SP) has peaked, and dropped in particular since the first party leaders’ debate on 26 August. The main ‘winner’ of that debate, as determined in a vote by viewers, was Diederik Samson, the leader of PvdA (Labour) with 52%, followed by Rutte/VVD on 34%. Emile Roemer, SP leader, was deemed the winner by only 5.7% of viewers. Roemer improved in the second televised leaders’ debate (30 August), but still Samson dominated, followed by Rutte. What is implied by the latest polls is still a strong result for the Socialists. At 30 seats (the two polls that capture the post-leaders’ debate mood), it would still be a record result for SP and a doubling of the party’s seats compared to the outgoing parliament. But it is less obvious now that the Socialists will be the most popular party. That honour may yet still be held by VVD. There will be two focal points following the 12 September election: first, the formation of a new coalition government itself (likely to take a few months); second, and more immediately, the 2013 Budget which faces parliament on 18 September.
- 12-13 September: FOMC meeting. Post Jackson Hole this will be the next key Fed event for markets. DB economists’ base case is that we’ll get a soft easing of monetary policy via the extension of the fed funds guidance. Bernanke will hold a press conference after the FOMC meeting.
- 13-14 September: G20 Finance Ministers and Central Bank Governors meeting in Mexico.
- 14 September: US retail sales, CPI.
- 14-15 September: Eurogroup/ECOFIN meeting – This was supposed to be the meeting to discuss adjustments to Greece’s second loan programme but press reports suggest that this may be delayed into October. Ministers are also expected to have their first discussion on the proposal for a common bank supervisory regime. Any delays for a direct bank recap mechanism will disappoint the market.
- 18 September: Dutch 2013 budget presented to Parliament.
- 27 September: Third revision to US Q2 GDP.
- 28 September: US personal spending, personal income.
- End/Late of September: Moody’s conclusion of Spain’s Baa3 rating review process.
- September some time (no specific date): Detailed bottom up Spanish bank stress test results to detail exactly Spanish banks’ recap needs. We'll also we the French draft 2013 budget at some point this month.
- October: ESM operational. Assuming the German Constitutional Court approves the German ESM Implementation Law on 12 September (possibly with minor changes) the ESM ought to come into force during October with its first EUR100bn of lending capacity. The ESM resources will complement the remaining firepower of the EFSF.
- 2 October: Greece auction. Bills
- 4 October: Spain auction. Bonds
- 4 October: ECB Council meeting. Another occasion for the ECB to consider the stance on policy, both standard and non-standard.
- 8-9 October: Eurogroup/ECOFIN finance ministers meetings. It is likely that the decisions on the Greek second loan programme will be taken in October rather than September, either at this finance ministers meeting or perhaps more likely at the EU leaders’ meeting on 18-19 October. Our expectation is that some compromise will be found, bringing some relief to Greece but minimising the cost to the EU, perhaps through a combination of IMF loan extensions and ECB willingness to roll its exposure into ELA. Exit will be avoided. This is also due to be the finance ministers' meeting at which decisions will be taken on how to reduce the Irish legacy bank funding costs, for example, through swapping the promissory notes for EFSF bonds. See Focus Europe, 6 July 2012 for
an analysis of the options.
- 9 October: Annual IMF/World Bank meetings.
- 18-19 October: EU leaders' summit. This is emerging as being the key political date for the EU to conclude the review of the Greek loan programme. Likely to be on the agenda for this meeting are the proposals for a common supervisory regime for banks under the ECB -- this will be the basis for a direct bank recapitalisation mechanism in the future -- and the second and more detailed euro integration roadmap from Van Rompuy, Barroso, Juncker and Draghi.
- 28 October: Finnish municipal elections. Markets will be particularly attuned to the fortunes of the anti- EU True Finns party. In the last municipal elections in 2008, the True Finns party increased its proportion of the vote from 0.9% to 5.4%. Opinion polls thissummer have put the party's support in the 11-16% range. This would be a less substantial swing to the TF compared to the parliamentary elections in April 2011 when the proportion of the vote compared to the preceding election increased from 4.1% to 19.1%. In quotes on Bloomberg on 31 August 2012, Finnish PM Katainen tried to ally fears: Rescues “are difficult in all countries, Finland is no exception,”. “We’ve taken part in all bailouts and we will continue to act responsibly. We’re looking for ways that don’t increase joint liability, but we do want to resolve the crisis”.
And some more detailed observations:
EURO AREA’s DISMAL GROWTH
Thursday’s Q2 GDP report is expected to clock in at - 0.1% qoq, slightly better than the preliminary reading but still painting a very a dismal picture and masking a deep divide in the region, with the periphery facing painful multi-year deleveraging and recession. Attention, however, will be on the ECB this Thursday. We see good chances of a rate cut and some additional clues on the new bond buying programme. MARKET ISSUES: Euro debt crisis resolution is an incremental political process and the ECB will not deliver any quick fix. Those with high hopes are likely to be disappointed.
TROIKA BACK IN GREECE
The Troika returns to Greece this week, although the final report is not expected before early October, at which time euro area leader will agree on a delay (or not). We expect Greece to be given more time, but no more money (at least for now) MARKET ISSUES: Grexit risks contagion on both sovereign bond markets and bank deposits.
US JOBS REPORT TO OPEN DOOR FOR QE3
Underlying economic weakness combined with seasonal quirks explain our call for a gain of just 70K on August non-farm payrolls. This compares to consensus of 120K. August ISM reports next week should see a slight uptick for both manufacturing and services, at 50.5 and 53.5, respectively. MARKET ISSUES: Chairman Bernanke’s Jackson Hole address delivered no surprises and focus is now on the 12/13 September FOMC. We expect to see action on two out of three policy leavers. (1) Low rate for longer: The current guidance is late 2014 and we expect to see this extended. (2) Additional QE: We expect the Fed to deliver with purchases of both Treasuries and Agency-MBS. The Fed could opt for a timeline – such as mid or late 2013 - as opposed to a dollar amount. Such an approach would allow the Fed far greater flexibility. (3) IOER on hold at 0.25: A cut in this rate comes with little benefit and risks disruption of money market funds. (cf. US Focus).
MORE CHINA TURBULENCE
At 49.2, China’s official August PMI Saturday fell below the 50 break line between expansion and contraction for the first time in nine months. The following week will see a flurry of Chinese data releases, but even if these confirm our call for a weaker H2, policymakers are unlikely to deliver the aggressive stimulus markets hope for faced with several high hurdles; (1) fears of over-capacity, (2) reluctance to fuel new property bubbles and (3) concerns about banking sector health as NPLs trend higher. MARKET ISSUES: We have long warned that China’s bumpy landing would offer uncomfortable turbulence. Hope spring eternal, but we do not expect Chinese policymakers to offer anything beyond a modest easing.
BoE ON HOLD FOR NOW
It’s been something of a mixed bag since the previous MPC and we expect the BoE to remain on hold at Thursday’s meeting. Adam Posen, who is a long standing advocate of QE and voted for at the previous MPC will be replaced by Ian McCafferty. Formerly the Chief Economist at the CBI, we expect him to be only too well aware of the issues facing the corporate sector and expect him to favour more QE. As has been the case with new members in the past, we expect him to ease softly into his new role. MARKET ISSUES: With both the Fed and ECB preparing to expand balance sheets, a wait-and-see approach from the BoE should be a positive for Sterling.
CBR TO HIKE 25BP
With Russian headline CPI set to jump to 6.0% in August, we expect the CBR to tighten monetary policy in a bid to bring inflation back on track to reach target next year after what will certainly be a miss this year. MARKET ISSUES: Oil sets the market tone for Russia – beware China’s bumpy landing.