Wall Street Week Ahead: End of summer to bring volume; all eyes on ECB

Marking the end of the summer doldrums, Wall Street is likely to kick off September with heavy trading volume while it hopes that the European Central Bank will hint at further stimulus measures to boost the global economy. 

 

On Friday, US Federal Reserve Chairman Ben Bernanke said that the central bank stands ready to bolster the economy if necessary, although he stopped short of giving an explicit signal of more monetary easing. 

 

US stocks rallied after Bernanke's speech to an annual conference of central bankers in Jackson Hole, Wyoming, with major indexes gaining more than 1 per cent in the late morning session. At the end of the day the Dow Jones industrial average was up 0.7 per cent, while the Standard & Poor's 500 Index was up 0.51 per cent and the Nasdaq Composite Index up 0.6 per cent. "This (Bernanke speech) was in line with what we were expecting. He left the door open but didn't announce anything explicit. He doesn't intend to front-run his own FOMC (policy)meeting," said Liz Ann Sonders, New York-based chief investment strategist at Charles Schwab Corp, which has $1.6 trillion in client assets. 

 

Investors are now awaiting comments from European Central Bank President Mario Draghi after the bank's meeting on Thursday. Many investors will look to the ECB meeting to glean strong clues on what to expect from the Federal Open Market Committee's own policy meeting the following week on Sept 12-13. 

 

"Between now and mid-September, we'll be focusing on the ECB, though the next FOMC meeting is also around the time that the German court meets, so we'll be getting news on both those fronts. Any news from Europe will drive markets more than domestic news, with the exception of the payroll report," Sonders said. 

 

The all-important US non-farm payrolls report is due on Friday. With Bernanke citing poor improvement in the labor market as part of the reason the US economy faces "daunting" challenges, Friday's data could be a game changer, according to market participants. 

 

In the euro zone, following the European Central Bank policy meeting on Sept. 6, a German Constitutional Court will rule on the euro zone's permanent bailout fund on Sept. 12, which may affect the ECB's bond-buying plans. 

 

But there was further uncertainty within the ECB over President Mario Draghi's bond-buying plan on Friday after German central bank chief Jens Weidmann reportedly threatened to resign, piling pressure on Draghi to mollify opposition. 

 

There are "growing hopes that Draghi has overcome Bundesbank opposition to announce a bond buying plan at next Thursday's ECB meeting," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. 

 

Copyright @Thomson Reuters 2012