Overnight Sentiment: Back To Zombie Mode

Hopes that today may finally see an increase in trading volatility and volume following yesterday's reversal session will likely be dashed as the event wasteland on the horizon continues for the third day in a row. As DB explains, the FOMC meeting minutes and Juncker’s visit to Athens are likely the two main sources for key headlines today. While backward looking and certainly predating Lockhart's hawkish comments from yesterday, the FOMC minutes today are expected to shed further light on the kind of policy currently under consideration and the economic conditions required before easing is warranted. One thing that will not be discussed is the circularity of launching more QE even as gas prices have never been higher on this day in history, soy and corn are back at all time highs, and the market trading at multi-year highs. As repeatedly explained before, the option for the FOMC include pushing out the targeted exit date for fed funds, providing “exit guidance” on balance sheet measures (i.e. asset sales), various mixes of additional balance sheet expansion (including the possibility of an open-ended QE program) and  cutting interest on reserves. It is virtually certain that none of these will be enacted at the Jackson Hole meeting in one week, 2 months ahead of the presidential election, but hope springs eternal.

Beyond today’s meeting the Beige Book (29 Aug) is a key update before the oft anticipated Jackson Hole event on the 31 August, DB continues. Jackson Hole clearly could be a forum for Chairman Bernanke to outline his policy strategy but it remains unclear to Deutsche Bank how strong a case could be built around a large-scale QE with equities currently flirting around a post-crisis high. The S&P 500 has not moved more than +/-1% for 12 consecutive session, the longest streak since 11 May 2011. Market eased gains after Fed’s Dennis Lockhart said that he remains undecided on further easing. Lockhart, who’s a voting FOMC member and holds a mild-dovish stance, said that monetary policy can exert a powerful influence on the economy but is not a panacea. He also added that “There is a risk to monetary policy being employed too aggressively and without effect to address economic problems that can be resolved only by fiscal reforms”.

Moving back to Europe, Samaras’ meeting with Juncker is scheduled to take place 5pm London time with a joint statement to follow. It is perhaps too early for Greece to ask for bailout concession today but the budget slippage as reported by recent press could be discussed. George Saravelos noted that PM Samaras is likely hoping for supportive language from key EU politicians indicating potential program adjustments. It’s a busy week for Mr. Samaras with Merkel’s and Hollande’s meeting on Friday and Saturday respectively to follow.

Away from Greece the latest Dutch opinion polls by the TNS Nipo yesterday showed a tight race between PM Mark Rutte’s pro-euro Liberal Party (VVD) and the far-left Socialist Party (SP) ahead of the 12 September general election. The poll showed that the Liberals and Socialists enjoyed support that would translate into 34 seats apiece in the 150 seat parliament. Last week Socialist leader Emile Roemer openly criticised the EU’s obsession with the 3% maximum budget deficit target and over the weekend also said that “The only thing a government can do in these times of crisis is stimulating the economy... Certainly not senseless austerity". It looks like a multi-party coalition is the most likely post election outcome in Netherlands.

Overall, anyone expecting major market-moving developments with the market living out the last days of vacation before the September roller coaster returns, will be disappointed.