Bernanke’s speech at the Fed Jackson Hole

Bernanke’s speech at the Fed Jackson Hole symposium poses a critical event risk.

The recent summer rally was largely buoyed by hopes for synchronised policy stimulus from major central banks. However, we caution that market might not be able to sustain its momentum against a still fragile macroeconomic backdrop. In fact, markets should be positioning for some disappointments and could sell off over the next few weeks, pending

(i) Bernanke’s clarification on the Fed’s stance at the Jackson Hole symposium this Friday and

(ii) ECB’s ability to deliver.

As to whether there will be QE3 in Sept, it is going to be a close call. We are of the view that while the US economy is still sluggish (no strong economic rebound), it is not sufficiently weak enough to warrant further QE in September (but inevitably by the end of this year).

We opine that this “additional monetary accommodation” (alluded in the Aug FOMC minutes) might also that the form of an extension of the current late-2014 rate guidance.