Get ready for an economic slowdown

Economics

This week we expect the Fed Beige Book to show economic conditions stabilised in August. The US trade balance for July is expected to have narrowed after the sharp drop in June.

In Europe we expect German factory orders and industrial production for July to show a rebound from a weak June. In Japan machinery orders for July should have slowed somewhat after strong earlier months.

Key event this week are the comments from Fed chairman Greenspan before the house budget committee together with the Fed Beige Book pulication. Comments are expected to be in line with a progressive further tightening of the monetary policy (50 basis points more until year end).

Foreign exchange

EUR/USD: Consolidation between resistance at 1.2200/1.2235 and support at 1.1975.

USD/YEN: Consolidation between 111.50 on the upside, and 109.00 on the downside.

Fixed income

As expected, yields bounced back up after the relief following the publication of the employment report in the US.

In Europe, yields also rose but less. Yields are expected to trend up slightly more over the week after the US labor day holiday on Monday.

Equities

Markets were in a wait-and-see mode most of the week as investors waiting for the mid-quarter trading update from Intel and the non-farm payrolls figure.

In the coming days, the comments from Alan Greenspan will be analysed closely in order to find indications about how the Fed will respond to the mixed economic signals of the last few weeks.

Our macro economic scenario suggests a slowdown in the second half and next year, which is the main reason why we stick to our gradual move into defensive sectors.