There are five key events for investors this week

BBH CurrencyView

• Fragile stability characterizes global capital markets at start of the week.
• Relatively narrow dollar ranges as market awaits indications of size of ECB bond purchases and Franco-German summit around which there has been contradictory talk of a Europe bond.

• Swiss franc continues to see recent surge unwind amid fear of increased Swiss action.

  The euro reached just beyond the CHF1.1450 area after having been as low as CHF1.0075 a week ago.

After last week tumultuous activity, market participants welcome today’s more stable tone.

Global equity markets are building on the pre-weekend gain by the US markets. The MSCI Asia-Pacific Index rose 1.9% as it tries to snap its 3-week 11% slide. South Korean and Indian markets were closed for national holidays, but all other regional bourses advanced. The Shanghai Composite advanced 1.3% extending its rally into its fourth consecutive session, which is its longest winning streak since late June. Japan’s Nikkei gained almost 1.4%, helped by a Q2 GDP report that was not as weak as expected (-1.3% at an annualized rate vs. expectations of a 2.5% contraction). European markets are mostly higher, but the early upside momentum is flagging near midday. Financials in the Dow Jones Stoxx 600 are holding on to slight gains, but under-performing the market. Sovereign benchmark bonds are little changed, with Spanish and Italian 10- year bond yields holding below then 5% threshold. Five year CDS prices are mostly softer.

There are five key events for investors this week.

The first is the size of the ECB bond purchases. The market does not learn about these directly, but only indirectly through the size of the ECB’s sterilization operation. Until the resumption of its bond purchases, the ECB was sterilizing about 74 bln euros. The consensus is that the ECB’s announcement at around 13:30 GMT (9:30 EST) will indicate they spent around 10-15 bln euros, though the range of estimates extends to as high as 50 bln euros, Relatively small purchases would also help minimize concerns about the EFSF, which will have fewer resources than the ECB.

Second, the Franco-German summit tomorrow attracts attention. There has been some speculation in the press that Germany was warming to the idea of a European bond. However, German Finance Minister Schaeuble threw cold water on the idea, reiterating Germany’s view that such a bond would weaken fiscal discipline. Word from France also suggested that a European bond was not on tomorrow’s agenda. The euro came off was the news hit, with new bids found in front of $1.4250. The market hopes for a new initiative form the summit, but the short-term market does not seem well positioned as the IMM Commitment of Traders show the net speculative position has switched to a small short position for the first time since mid-January.

Third, the market continues to pare long Swiss franc positions with the local press suggesting the SNB and government may take new measures. Talk of a peg or new band still does not seem like the most practical or efficient strategy. It would imply intervention, which has been a massively losing proposition and/or capital controls. The euro approached the level that initial speculation suggested could be a peg (CHF1.15), but has backed off considerable. The liquidation of long Swiss franc positions has been a favor in helping lift other currencies, as cross positions are unwound.

Fourth, the minutes from the BOE’s MPC meeting form earlier this month will be released on Wednesday. The combination of weak economic data and the decline in commodity prices may see the hawks on the MPC capitulate to the majority. However, comments by MPC member Miles suggests that new asset purchases or a cut in the bank rate are not likely near-term either.

Fifth, of this week’s slew of US economic data, the CPI may be the most important. Last week, the FOMC kept the door open to QEIII, which some observers think is all but inevitable. In order for a new round of asset purchases, Fed officials may need to see price pressure ease. The CPI report on Thursday is not likely to show this. In fact, the US core CPI rate is likely to tick up to 1.7%, which would be the highest since December 09. Attention will shift to Bernanke’s Jackson Hole speech later this month.