• Wed. Sep 21st, 2022

Take in the views of Jackson Hole

ByElla E. Kidwell

Aug 19, 2022

(Reuters) – Jackson Hole, Wyoming, is the focal point of markets over the coming week as investors focus on the Federal Reserve’s annual conference.

Activity indicators in the euro zone and an inflation gauge in the United States are also on the agenda, while rate cuts could be looming in China.

Here’s a look at the week ahead from Tommy Wilkes and Marc Jones in London, Kevin Buckland in Tokyo, Ira Iosebashvili and Lewis Krauskopf in New York, Riddhima Talwani in New Delhi, Sumanta Sen in Mumbai and Vineet Sachdev in Bengaluru.

How big will future rate hikes be? How strong is the economy? What about quantitative tightening?

Investors hope the Federal Reserve can shed some light on these issues when central banking heavyweights gather Aug. 25-27 for their annual symposium in Jackson Hole, Wyoming.

US stocks have soared this summer, despite warnings from the Fed that expectations of a spike in inflation and a so-called central bank dovish pivot could be premature.

Some investors believe Chairman Jerome Powell will push back on market optimism again, reminding investors that there is another inflation report and another jobs number ahead of the Fed’s September meeting.

Further details are also being sought on the Fed’s reduction of its $9 trillion balance sheet, known as quantitative tightening, which some investors have flagged as a potential risk to market liquidity.

Chart: Tightening – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/zdvxozgrjpx/chart.png

Fears that the eurozone economy is heading into recession are growing. Data from the Purchasing Managers Index flash survey should shed some light on when this might happen.

August figures, due on Tuesday, could show another month of contracting business activity after S&P Global’s Final Composite Purchasing Managers’ Index (PMI), considered a good indicator of economic health, fell to a 17-month low of 49.9 in July.

Eurozone businesses are grappling with soaring energy prices and shortages, soaring inflation and expectations of higher interest rates. An economic sentiment index for eurozone powerhouse Germany recently showed investor sentiment tumbled in August as fears grew that rising living costs would hurt private consumption.

Tuesday will also include the release of flash PMI figures for the US and Britain.

Chart: Slowing Business Activity – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/lgpdwyglmvo/chart.png

3/ CHINA’S LIQUIDITY TRAP

More rate cuts are looming in China, but analysts and investors doubt they will provide any support to an economy ravaged by a housing crisis and strangling COVID-19 lockdowns.

The People’s Bank of China sets the so-called prime lending rate on Monday for one-year and five-year borrowings – the basis for corporate loans and mortgages, respectively – after recently surprising markets by cutting principals. bank loan rates.

The move fueled fears of a slowdown that sent the yuan tumbling to its lowest level in two months.

The PBOC pushes banks to lend more and injects money into the financial system. But the demand for borrowing just isn’t there, with businesses worried about the economic outlook and consumers wary of falling house prices.

Chart: Falling demand – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/jnvwenrwovw/chart.png

With markets contracting on any hint that soaring inflation has reached or remains at its highest level in four decades, the US Federal Reserve’s favorite price measure is due on August 26.

The release of the personal consumption expenditure price index for July comes after another key measure of inflation, the consumer price index, remained stable on a monthly basis in July, the strongest monthly deceleration in price increases since 1973, a result that has encouraged stock market investors.

In the 12 months to June, the PCE price index rose 6.8%, the biggest increase since January 1982.

With recession fears lingering and investors hungry for clues about the economy’s strength, new home sales data arrives on Tuesday and durable goods on Wednesday.

Has US inflation peaked? – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/klpykwldgpg/chart.png

Wednesday marks the sixth anniversary of Russia’s invasion of Ukraine, or special military operation as Moscow has called it.

Not only has this been a humanitarian tragedy and plunged the world into a new Cold War, but it has also been a key driver of growing recession concerns, particularly in Europe where a gas crisis looms.

Gasoline prices in the region have nearly tripled since June alone. Rationing in powerful economies like Germany may well be necessary, but the ECB, Bank of England and others are adamant they must simply crush the inflation it fuels.

Other very sensitive markets have shown themselves to be remarkably elastic. Wheat and corn – of which Ukraine and Russia are huge suppliers – have collapsed, while Moscow’s main source of income, oil, is now selling for less than when the invasion began.

Graphic: Six Months of the Ukrainian War – https://fingfx.thomsonreuters.com/gfx/mkt/mypmneyobvr/Pasted%20image%201660815413565.png

(Compiled by Lewis Krauskopf in New York; edited by Matthew Lewis)

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