Bernanke Says The US Economy Is 'Far From Satisfactory'

Federal Reserve Chairman Ben S. Bernanke says the U.S. economy is “far from satisfactory.” His colleagues are moving to embrace policies that will stay in place until he’s satisfied. Four Fed presidents have come out in favor of an open-ended strategy for bond buying, with three calling for the program to begin now. Rather than specify a fixed amount of bonds to purchase by a certain date, such a strategy would leave the Fed able to announce a pace of purchases that it could adjust as the economy gets closer to Bernanke’s goals, according to an article published by Bloomberg News.

A report by Bloomberg News reported that China’s economy is showing mounting signs of deterioration from manufacturers to banks, raising the risk that outgoing Premier Wen Jiabao will miss his growth target for the first time since taking office in 2003. Manufacturing slowed further in August, surveys of purchasing managers showed September 1 and today, with one gauge at the lowest level since March 2009.

The readings added to evidence of weakness after a surfeit of unsold goods left near-record rubber stocks at China’s main hub for the commodity and financial strains saw a 27 percent jump in overdue loans at the five biggest banks in the first half.

The European Central Bank president will unveil details of his bond-purchase program on September 6, Italy and Spain are showing little willingness to request aid from Europe’s bailout fund -- a pre-condition for the ECB to start buying their debt. A jump in bond yields may remind governments that they need to act first. Draghi’s plan hinges on governments asking the bailout fund to buy their bonds on the primary market, which would require them to sign up to strict conditions, before the ECB intervenes on the secondary market.

Spain will consider the prospects of applying for a fresh aid program aka bailout, aside from the recently approved 100 billion banking sector rescue package, as long as no new conditions are asked, Prime Minister Mariano Rajoy said in an interview published in European newspapers on Sunday.

On the other hand, German newspaper Bild reported on Friday, that the Bundesbank president Jens Weidmann is considering stepping down, due to the disagreement over ECB's bond purchase program, which he perceives as “too close to state financing via the money press.”

EUR/USD: The EUR/USD traded higher against the U.S. dollar on Friday, as expectations for fresh stimulus measures by the Federal Reserve weighed on the USD, while hopes for action by the European Central Bank boosted demand for the EUR. The pair traded above the key level of 1.26000 Friday, however today the EUR/USD was trading at 1.25779 at the time of writing on market correction and profit taking.

Market sentiments remain bullish for the EUR on growing expectations that the Fed will use stimulus measure to boost the U.S economy and on hopes that President Mario Draghi will more details about the size and scope of the bank’s bond purchasing program from ECB’s post-policy meeting press conference on Thursday.

According the a report published by Bloomberg News, U.S Payrolls probably grew at a slower pace in August and unemployment exceeded 8 percent for a 43rd month, highlighting why Ben S. Bernanke said the lack of jobs is a “grave concern” for U.S. policy makers, economists said before a report this week. Moreover, the employment tally of 125,000 would follow a 163,000 gain in July, according to the median forecast of 71 economists surveyed by Bloomberg ahead of Labor Department figures September 7.

A separate report may show manufacturing teetered between growing and shrinking. If these news arrive as economists’ expectations, it may boost the demand for the EUR. Other events likely to bring volatility on the pair are; Monday; ECB President Mario will testify before the European Parliament's Economic and Monetary Affairs Committee, in Brussels. Meanwhile, Spain and Italy will release official data on manufacturing activity.

Tuesday; the U.S. will publish a report by the Institute for Supply Management on manufacturing PMI. Wednesday; the eurozone will publish official data on retail sales, while the U.S. will produce revised data on nonfarm productivity. Thursday; the ECB will announce its benchmark interest rate. The announcement will be followed by a press conference with bank head Mario Draghi, which will be closely watched for details of the bank’s bond purchasing program.

On the other hand, the U.S. will produce industry data on non-farm employment change, followed by weekly government data on unemployment claims. The country will also release a report by the Institute for Supply Management on non-manufacturing activity, as well as government data on crude oil stockpiles. Friday, Germany will publish official data on industrial production while the U.S. will release data on nonfarm payrolls and the unemployment rate, as well as a report on average hourly earnings.
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AUD/USD: The Australia’s dollar touched its lowest level in five weeks, trading at 1.02688 at the time of writing after government bonds extended record gains after domestic retail sales dropped and manufacturing shrank in China, the nation’s biggest trading partner. The AUD was up on Friday, after U.S. Federal Reserve Chairman Ben Bernanke said in a speech the U.S. central bank would consider rolling out stimulus measures should the U.S. economy wane from its already lackluster recovery but the gains were limited on concerns that the European Central Bank has still not announced plans to buy Spanish and Italian sovereign debt, while growth prospects in China remains cloudy as well.

This week, the pair is likely to register some volatility as the RBA officials gather for a policy decision tomorrow. They are expected to keep the overnight cash-rate target at 3.5 percent for a third meeting, according to all 24 economists surveyed Aug. 31 by Bloomberg News. In addition, China’s manufacturing Purchasing Managers Index fell to 49.2 last month from 50.1 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said at the weekend.

A final reading released today for a similar gauge by HSBC Holdings Plc and Markit Economics indicated that China’s factory output shrank in August by the most since March 2009. Other events likely to affect the AUD in the week ahead are; Tuesday, official data on the current account in Australia. Wednesday, official data on second quarter gross domestic product. Thursday, official data on employment change and the unemployment rate and Friday, official data on trade balance in Australia.
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Gold: The yellow metal traded at the highest level is March 2012 on Friday, after Bernanke said the persistently high rate of unemployment was a “grave concern” and reiterated that the central bank was ready to provide additional policy accommodation as needed to shore up growth. Today, the commodity was trading slightly lower at 1689.03 on some market corrections and profit taking.

This week, volatility is expected on the commodity on growing speculations that the Fed will implement more stimulus measures at its two-day policy meeting beginning September 12. Expectations of monetary stimulus tend to benefit gold, as the yellow metal is seen as a safe store of value and inflation hedge. Moreover, investors will closely watch the ECB’s post-policy meeting press conference, where the European Central Bank president will unveil details of his bond-purchase program on September 6, renewing optimism that European leaders are making progress in tackling the region’s debt crisis.

Investors should focus on the economic data which will be released in the U.S and the eurozone for indications on the health of the economies and the way forward of the central banks to boost their economies. For more indications, Investors should monitor the trend of the USD as the USD and Gold often trade inversely to each other.