Australia: Bernanke’s comments were made during his second day of his semi-annual testimony to Congress. These comments managed, by all accounts, an over reaction by markets which followed his first day of testimony. The markets have become enthusiastic to hear QE3 is on the table and being mooted, and this led to rallies in risk assets. His comments are worth noting. He commented the Fed was still prepared to take action if economic recovery is derailed, but that the Fed is “not prepared at this point to take further action”. He added that the Fed is “uncertain about the near term developments in the economy” and “we would like to see if the economy does pick up, as we are projecting”.

[Kick off your day with Global Markets Daily]

Inflation is higher than 12 months ago when QE2 was implemented, and it remains near the Fed’s target, so it looms as the major hurdle for QE3. It is all about the US at the minute.

Talk of QE3, inflation, the Fed, persistently high unemployment and let’s not forget the US debt ceiling. Moody’s were out yesterday. They have made threats to downgrade the US credit rating and this has heightened the importance and indeed expeditiousness of negotiations taking place between the Obama Government and the Republican Party.

Fed Chairman Bernanke opined on this too, stating excessive cuts could potentially derail economic recovery and that a US debt default would be a “calamitous outcome” that would “create a very severe financial shock that would have effects on not just the US economy, but the global economy”. We’ll leave Europe for the next section! There is no data due for release in Australia today but there is a large amount of data in the US tonight which may test the AUD any which way.

Majors: Currencies were mixed after Bernanke’s comments, as were equity and commodity markets. EUR/USD eased while GBP/USD maintained its position. In Italy, the Senate passed the austerity package with the Chamber of Deputies to vote on it tonight. The package itself aims to reduce Italy’s budget deficit to 2.3% by 2014 from the current 4.6%. US data released tonight includes CPI for June, consumer confidence and
industrial production.
Economic Calendar
EU Euro-zone Trade Balance MAY
US CPI JUN
US Empire Manufacturing JUL

More from IBT Markets:
Follow us on Facebook.
Follow us on Twitter.
Subscribe to get this delivered to your inbox daily