New Risks for Europe After Jackson Hole

Jackson Hole wound down without any game-changing headlines but there were some interesting sub-plots. The Swiss franc is the early-week leader while the loonie lags. Monday's European and Asian calendars are virtually empty and the UK is on holiday to start the week.  The Canadian dollar couldn't catch a lift from upbeat risk sentiment after a dismal retail sales report. The Australian dollar was the best performer while the yen struggled broadly. The Asian session is quiet ahead of UK GDP and Jackson Hole later.

The annual gathering of central bankers in Jackson Hole was less exciting than years past but some debates moved forward.

In Europe, comments from Bank of Cyprus Governor Panicos Demetriades highlighted that the debate on lowering rates isn't over despite Nowotny's assertion on Friday that there is no immediate reason for a rate cut. Demetriades said a cut is still in the cards and he had support from the IMF's Lagarde who said the ECB has room to maneuver.

Greek fin min Stounaras also grabbed headlines saying the country may need 10 billion euros in additional aid. German leaders are refusing to contemplate a third bailout ahead of Sept 22 elections.

A third risk for Europe is the uneasy Italian political situation as Berlusconi's party threatens to bring down parliament if Silvio is expelled from the government.

One Jackson Hole sideline debate was on emerging markets. A paper argued for capital controls as many countries are stuck waging currency battles because of capital flight. The Fed's Lockhart indicated those countries won't get any help from the Fed. We only have a mandate to concern ourselves with the interest of the United States, he said.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +37K vs +16K prior JPY -72K vs -74K prior GBP -40K vs -47K prior AUD -63K vs -63K prior CAD -10K vs -9K prior NZD +2K vs flat prior CHF +1K vs +2K prior US Dollar Index longs at 12K vs 16K prior

The bigger moves came in commodities as gold longs increased 29% and copper bets doubled.