After seeing the thoughts of FOMC members 3 weeks ago in the minutes released yesterday and comments from Rosengren, Fisher, Williams and Lockhart since, Evans and Bullard are now chiming in to the debate. Evans maintained his belief that more action is needed and he said specifically that “I don’t need to see any more data to know that.” Bullard is more circumspect and doesn’t think current economic and market conditions lend itself easily to full blown QE. So, if he does prefer more action, he doesn’t seem likely to support something big right now and he also said the minutes are somewhat stale considering what’s happened since. With the S&P’s near multi yr highs, commodity prices just shy of their highest level since early April and some better than expected economic data points since the last FOMC meeting, its very possible that Bernanke will wait for the Aug payroll report before making a decision, thus making Jackson Hole a possible non event.

Initial Jobless Claims totaled 372k, 7k above estimates and up from a revised 368k last week (from 366k). It’s the 1st week above 370k since mid July but that data was distorted as we all know. The 4 week average, helping to smooth out the trend, was 368k vs 364k last week and 369k the week prior. Continuing Claims, delayed by a week, was up by 4k but Extended Benefits, delayed by two weeks, fell by 48k. In response to the data, Bullard on cnbc said that the current state of the economy with under 400k jobless claims, 150k increase in payrolls, and 2% GDP growth is middling growth and to this “I wouldn’t take a decision right now” on further Fed action. He also said if the committee were to act, middling growth does NOT deserve big action as a recession would.

In Asia, China’s flash HSBC mfr’g PMI fell to the lowest level since Nov ’11 at 47.8, remaining below 50 for the 10th straight month. In Europe, the mfr’g and services composite index for the euro zone was little changed in Aug at 46.6, below 50 for the 11th month in the past 12.

In the AAII individual investor sentiment data, bulls rose almost 5 pts to 42 and Bears fell 2.2 pts to 25.9, both back to levels last seen in March.

Source: The Big Picture

From the FOMC minutes from the meeting 3 weeks ago: “Participants exchanged views on the likely benefits and costs of a new large scale asset purchase program. Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer term interest rates and by contributing to easier financial conditions more broadly.” “However, others questioned the possible efficacy of such a program under present circumstances, and a couple suggested that the effects on economic activity might be transitory.” Also, some members were worried about the markets for Treasuries and MBS if the Fed did more while others were not. On an exit one day, “several worried that additional purchases might alter the process of normalizing the Fed’s balance sheet when the time came to begin removing accommodation.” A few were worried about the risks to financial stability and inflation with extended accommodation or more QE. Lastly of importance, “many” wanted any new QE to be “flexible to allow adjustments, as needed, in response to economic developments or to changes in their assessment of the efficacy and costs of the program.” Bottom line, of the 10 voting FOMC members, 8 are doves so it will always be the case that “many” are ready for more QE if need be. The hawks are few and far between. I stick to my belief that more QE is coming on Sept 13th as the Oct meeting is too close to the election and Bernanke won’t act in Dec if Romney wins. This could be his last chance for a while and Ben still seems to believe in the pixie dust of QE.

Source: The Big Picture

While we await the FOMC minutes from the meeting of 3 weeks ago to try to glean some clues on how the committee will act on Sept 13th, I think we’re not going to get much. Over the past few weeks in speeches we heard from non voting member Rosengren and voting member Williams who both want more QE. Fisher, a non voting member, said no mas and Lockhart yesterday said he’s still thinking about it. This will likely be what we see in the minutes, some who want more QE, some who don’t and others that are wait and see. It’s also very possible that Bernanke next Friday doesn’t tip his hand either way as he may want to wait to see the Aug payroll report in Sept before committing.

Source: The Big Picture

Germany seems willing to give a little on Greece, not with new money but with easier terms on debt owed and possibly some more time to meet budget targets. A German government official said for Greece that “small concessions are feasible…for instance, the interest and maturity on loans could be adjusted.” The EU head meets with Samaras tomorrow ahead of Samaras seeing Merkel and Hollande later on in the week. The Greece bond maturing in Feb ’23 is up to the best level since early May, albeit at only 20.5 cents on the euro. In sympathy to possibly looser terms, the debt of Ireland, Portugal, Spain and Italy are all higher.

Source: The Big Picture

The German newspaper Der Spiegel yesterday reported that the ECB “is considering establishing caps on interest rates for government bonds in individual countries as part of its future bond buying program. Under the plan, the ECB would begin purchasing government bonds from crisis hit countries if yields for those bonds exceeded the interest rates for benchmark German sovereign bonds by a predetermined amount.” Not long after, the German Finance Ministry spokesman said he knew of no plans for ECB interest rate targeting and said “theoretically speaking, such an instrument is certainly fraught with problems.” Also, in its monthly report the Bundesbank “remains critical of ECB purchases of government bonds” and said “government solvency risks mustn’t be shared via ESM bank aid.” Since, the ECB came out in response to the Der Spiegel artilce and said bond yield targets have not been discussed by the council, it’s ‘wrong’ to speculate on the shape of future bond buying and it ‘will act strictly within its mandate.’ Following the ECB comments, yields in Spain and Italy are off their lows of the morning and the IBEX and MIB gave back their earlier gains. With respect to Greece, Samaras will meet this week with Merkel and Hollande to discuss again their budget progress. In Asia, the Shanghai index intraday did trade to its lowest since Mar ’09 but bounced off its lows to close only at a 3 week low after a story was published saying the PBOC was not cutting RR in the short term.

Source: The Big Picture

Source: The Big Picture

In continued anticipation of the Spanish government officially asking for EU/ECB help, the IBEX index is up for a 5th straight day to a 4 month high and the Italian MIB index is as well. Yields for both countries 2 yrs out are also lower for a 4th day. With us all awaiting the likely inevitable request at some point in the next few months, the question remains of how much of the remaining money in the EFSF and soon to be ESM will they allocate to primary bond buys for Spain and how big will the ECB get in the secondary market. The question then following this is whether the decline in yields are sustainable after the money’s been spent as only time is being bought.

Source: The Big Picture

Source: NYT

Source: The Big Picture