The upcoming week in the financial world is set to be packed with key events and data releases that will likely shape market sentiment and expectations. From the Jackson Hole Economic Symposium to PMI data releases in various regions, investors will have plenty to analyze and react to as they assess the current economic landscape.
Jackson Hole Symposium: A Test for Overly Dovish Fed Cut Bets
The recent panic triggered by weaker-than-expected NFP report for July has subsided, leading investors to reevaluate their aggressive Fed rate cut bets. Initially, investors were anticipating as many as 125bps worth of rate cuts by the end of the year, but this has now been adjusted to a more modest reduction closer to 100bps. Despite this adjustment, the current expectations still lean towards a significantly dovish stance, with the possibility of a 50bps cut at each remaining decision in 2024.
The upcoming Jackson Hole Economic Symposium, scheduled for August 22-24, will be a crucial event for investors as they await insights from Fed Chair Powell and other major central bankers on the effectiveness and transmission of monetary policy. With inflation hovering around 3%, Powell’s commentary on price pressures and the overall economic outlook will be closely watched. While the door to a September rate cut remains open, expectations for a double rate cut may not be met, potentially leading to upward pressure on Treasury yields and the US dollar.
PMI Data Releases: Eurozone, UK, and US in Focus
The preliminary S&P Global PMIs for August in the Eurozone and the UK are set to be released next week, providing further clarity on the economic conditions in these regions. In the Eurozone, the ECB’s decision to keep interest rates unchanged at its latest meeting, coupled with President Lagarde’s cautious tone on growth outlook, has already fueled expectations for a September rate cut. A set of weak PMIs could further validate this view and influence market sentiment.
In the UK, despite recent data showing a drop in unemployment rate and a slight rebound in headline inflation, the Bank of England remains cautious about additional rate cuts. With around a 30% chance of a back-to-back reduction in September, the upcoming PMIs will play a crucial role in shaping the BoE’s decision-making process.
Canadian CPI and Retail Sales Data: Impact on BoC Policy Path
Canada’s CPI figures and retail sales data, scheduled for release next week, will provide insights into the nation’s economic health and potentially influence the Bank of Canada’s policy decisions. With the BoC having cut interest rates at its last two meetings, investors are closely monitoring inflation trends for any signs of further easing. While the expectation of continued rate cuts is already priced in, a slowdown in inflation could add weight to this outlook and weigh on the Canadian dollar.
Japan’s Nationwide CPI Data: Implications for BoJ Policy
Japan’s Nationwide CPI numbers for July will also be on the agenda next week, with the potential to impact the Bank of Japan’s policy path. While headline inflation may have slowed, underlying prices continue to accelerate, hinting at a possible BoJ hike by the end of the year. However, the yen’s strength may be limited by low interest rates compared to other major central banks, allowing investors to use it as a funding currency for risk exposures.
In conclusion, the upcoming week is poised to be a critical period for investors as they navigate through key events and data releases that will shape market expectations and sentiment. From the Jackson Hole Economic Symposium to PMI data releases in various regions, market participants will be closely monitoring developments to make informed decisions in the ever-evolving financial landscape.
