Week Ahead – On to Jackson Hole

The event we’ve all been waiting for

Jackson Hole has been heavily discussed since the Fed’s supposed “dovish pivot” last month when it adopted a more data-dependent stance. While policymakers have pushed back against the idea of a pivot, markets have continued to price in a slower path of tightening.

Chair Jerome Powell could use his platform next week to join the chorus of policymakers highlighting the need for ongoing aggressive tightening, continuing the push back against the market narrative. But will he do that? The CPI data for July may allow for a softer approach, although it could be argued to be counterproductive given how high inflation still is and how much work there remains to do.

As ever with these events, it won’t take much to excite investors. Any hint at all that the central bank could be tempted to take its foot off the break, that inflation has peaked and will fall back towards target could be enough to fuel more optimism in the markets. The question is what happens if there is no pivot? Will investors be as open to a hawkish Powell as they will a dovish one?

All eyes on Powell

Pressure ramping up on the SARB?

CBRT cuts rates as inflation nears 80%


US

The main event of the week will be the Jackson Hole Symposium.  The annual global central banking conference will feature Fed Chair Powell’s speech which may give some insight into how aggressive the Fed will be with tightening in September.  Many traders will remember Powell’s 2021 address which clearly showed him tripling down on his view that inflation was transitory.  

Powell will reiterate the message that the economy still has forward momentum and that they are nearing the end of tightening. He may also try to drive the point that after they are done tightening, the Fed will keep rates steady for a while until inflation has clearly returned closer to target.       

A wrath of economic data will be released, with the two big ones being the flash PMI readings and the second look at Q2 GDP.  Friday will be busy with the Fed’s preferred inflation gauge, and personal income data for July that is expected to remain steady while spending slows.  

Election season continues with US primary elections in Florida and New York.  

EU 

Economic data in focus next week, with surveys among the highlights as flash PMIs, GfK and Ifo are released. Europe is likely heading for recession and the surveys will tell us how fearful businesses in the bloc are ahead of what could be a troubling winter on the energy front. On that, energy will be a key focus as it will throughout the winter.

The ECB meeting accounts will also be in focus as traders fully price in a 50 basis point hike next month. Appearances from policymakers will also be closely followed, as ever.

UK 

Flash PMIs are the only releases of note next week while any commentary from BoE policymakers will also be closely monitored. Markets are currently pricing a strong chance of a 50 basis point rate hike next month although there is now an outside chance of 75.

Russia

Just industrial production data next week as traders weigh up how low rates are going to go. They’ve had little impact on the currency so far which remains more than 20% higher since the invasion.

South Africa

The SARB is in the midst of an aggressive tightening cycle and inflation data next week may shed some light on how much more is needed. The CPI number is expected to rise from 7.4% to 7.8%, well above its target range of 3-6%, while the core reading is expected to tick higher to 4.5% from 4.4%. Meanwhile, the unemployment rate is expected to rise from 34.5% to 35.7%.

Turkey

When inflation is running close to 80%, a bad policy move from the CBRT would ordinarily have been not raising interest rates, and aggressively at that. Naturally, that wasn’t enough for it even under these extreme economic conditions, so they instead cut rates by 100 basis points to 13% at their August meeting. In doing so, they caught forecasters everywhere off guard, despite none expecting them to do anything sensible in the first place. It takes something special for the CBRT to underperform even the lowest of expectations.

Switzerland

No data or scheduled appearances next week. We can never discount the possibility of a surprise rate hike given the SNB’s history of policy shocks.

China

On August 15, China’s central bank cut the one-year medium-term lending facility (MLF) and reverse repo rates by 10 basis points to 2.75% and 2.00%, respectively. This should lead to a reduction in the 1 and 5-year loan prime rates early next week. 

China’s second-quarter GDP recorded positive growth of 0.4%, but the high cost of its zero-Covid policy and real estate bad debt may continue to limit China’s economic growth.

India

No major data or events next week.

Australia & New Zealand

The Australian and New Zealand dollars fell following the recent release of disappointing Chinese economic data for July. Australia and New Zealand’s largest export market is China, so the weak performance of Chinese economic data may be reflected in the trade data.  With inflationary pressures, the RBA may continue its hawkish pace of rate hikes, with the market widely expecting a 50 basis point hike to 2.35% at the September rate meeting, on top of the current rate of 1.85%. The short-term risks are the Fed, the recent fall in commodity prices and the weak Chinese economy. PMIs in focus next week.

On August 17, the RBNZ met market expectations to raise interest rates by 50 basis points to 3.00%, the fourth consecutive rate hike this round. Next up is retail sales on Wednesday.

Japan

The Federal Reserve and the Bank of Japan’s monetary policy divergence continue to support the dollar’s strength against the yen. Events at Jackson Hole could further exacerbate these pressures or perhaps even alleviate them depending on how much the Chairman pushes back against the “dovish pivot” narrative.

BOJ Governor, Haruhiko Kuroda has previously said there is no consideration at all for a rate hike and no plans to extend the upper range of the yield curve control (YCC) of 0.25%. 

Singapore

CPI and manufacturing data are in focus next week.


Economic Calendar

Saturday, Aug. 20

Economic Events

Some UK trains are expected to be cancelled amid strikes by the National Union of Rail, Maritime and Transport Workers

Italian politicians attend the annual Rimini meeting

Sunday, Aug. 21

Economic Events

Singapore PM Lee Hsien Loong gives a National Day Rally speech

German Chancellor Scholz due to speak

Port workers at Felixstowe in the UK begin an eight-day strike

Monday, Aug. 22

Economic Data/Events

China loan prime rates

Taiwan unemployment, export orders

UK Foreign Secretary Truss and former Chancellor Sunak hold hustings in Birmingham

German Chancellor Scholz to meet PM Trudeau in Canada

Austrian Chancellor Nehammer speaks about “The New Europe” at the Alpbach Forum 

Tuesday, Aug. 23

Economic Data/Events

US new home sales, Flash PMIs

Australia Flash PMIs

Eurozone Flash PMIs, consumer confidence

Germany Flash PMIs

Japan Prelim PMIs, department store sales

Mexico international reserves

Singapore CPI

South Africa unemployment

Thailand Bloomberg economic survey

UK Flash PMIs

Minneapolis Fed President Kashkari speaks at Wharton Minnesota Alumni Club

ECB’s Panetta speaks at the Annual Congress of the European Economic Association at Bocconi University in Milan

German Finance Minister Lindner speaks in Switzerland

US primary elections in Florida and New York

 Wednesday, Aug. 24

Economic Data/Events

US durable goods, MBA mortgage applications, pending home sales

Japan machine tool orders

Mexico bi-weekly CPI

Russia industrial production

South Africa CPI

Thailand trade

EIA crude oil inventory report

Riksbank Deputy Governor Floden speaks

French President Emmanuel Macron has his first cabinet meeting after the summer break

Italian caretaker Prime Minister Mario Draghi attends Rimini meeting

Thursday, Aug. 25

Economic Data/Events

Kansas City Fed hosts its annual economic policy symposium in Jackson Hole, Wyoming

US GDP, initial jobless claims

Germany GDP, IFO business climate

Japan PPI

Mexico GDP

New Zealand retail sales

ECB publishes an account of its July policy meeting

Bank of Japan board member Nakamura speaks in Fukuoka, Japan

Bank of Finland’s Valimaki speaks about the European economy and monetary policy

Friday, Aug. 26

Economic Data/Events

Fed Chair Powell speaks at Jackson Hole

US consumer income, wholesale inventories, University of Michigan consumer sentiment

France consumer confidence

Italy consumer confidence

Japan Tokyo CPI

Mexico trade

New Zealand consumer confidence

Singapore industrial production

Thailand forward contracts, foreign reserves, manufacturing index, capacity utilization

UK energy regulator Ofgem announces new energy price cap for households

Sovereign Rating Updates

Austria (S&P)

Denmark (S&P)

Belgium (Moody’s)

Portugal (DBRS)

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all)