Weekly Market Outlook – We have a light week this week in terms of high-impact data which can often lead to a risk return to the market. This week’s data is primarily composed of services and manufacturing PMIs from Europe, the United Kingdom, and the United States. The Jackson Hole Symposium will also be on this week’s data list, featuring Federal Reserve Chairman Powell and other Fed members. We could see a spike in volatility towards the end of the week as a result of this.
Key Data to watch this week on the economic calendar is as follows:
- All – Jackson Hole Symposium
- EUR – French Flash Services PMI
- EUR – German Flash Manufacturing PMI
- GBP – Flash Manufacturing PMI
- USD – Flash Services PMI
- USD – Prelim GDP Q/Q
- USD – Core PCE Price Index M/M
USD — Jackson Hole Symposium on Spotlight
This week’s main event will be the Jackson Hole Economic Symposium. As summer draws to a close, the Federal Reserve‘s top brass will meet in Jackson Hole for their annual symposium. In the past, this meeting has been used to signal major shifts in monetary policy, so it is considered an unofficial policy meeting.
As part of the annual global central banking conference, Fed Chair Powell will give a speech that could shed some light on how aggressive the Fed will be with tightening in September. There is no doubt that many traders will remember Powell’s 2021 address when he clearly tripled down on the idea that inflation was transitory.
It is expected that Powell will reiterate the message that the economy is still moving forward and the tightening cycle is close to ending. The Fed may also try to emphasize that after they are done tightening, rates will remain steady for a while until inflation is clearly returning to target.
This week will see two big releases of economic data: First will be the S&P Global PMIs for August on Tuesday, which will reveal whether growth and inflationary pressures have cooled. Among the other releases are durable goods orders on Wednesday, the second estimate of GDP for Q2 on Thursday, and the core PCE price index on Friday.
EUR — PMI business surveys due on Tuesday
The focus this week is on economic data, with flash PMIs, GfK and Ifo surveys among the highlights. There is a high probability that Europe will enter into recession, and these surveys will give us an idea of how fearful businesses are ahead of what could be a difficult winter on the energy front. Energy will continue to be a key focus as it has been throughout the winter.
Natural gas prices in Europe have hit new records over the past few weeks as a result of the energy shortage, while the drought in Germany has dried up rivers and made transportation difficult. As gas prices soar, many companies will be uncompetitive and perhaps unprofitable. Moreover, if Europe’s powerhouse struggles, other countries won’t escape unscathed.
Tuesday’s PMI business surveys will provide traders with an assessment of the damage. In August, the Eurozone economy is expected to cool further, with manufacturing falling deeper into contractionary territory and services barely expanding. The ECB meeting accounts will also be in the spotlight as traders fully price in a 50-basis point rise next month. A close eye will be kept on the appearances of policymakers as well.
GBP — British PMIs eyed too
As for GBP, the only data released this week are Flash PMIs, while any comments from the BoE’s policymakers will also be closely monitored. In the current market environment, it is widely believed that a rate hike of 50 basis points is likely to occur next month, although there is now an outside chance of 75 basis points.
A rise in the Bank Rate will likely result in a lesser rise in savings and borrowing rates.
The UK will get a glimpse of its own PMI surveys for August on Tuesday. Despite the BoE raising interest rates at every meeting, the sterling has had a poor year so far, underperforming even the war-stricken euro. Even though the UK doesn’t import much energy from Russia directly, it is still affected by the energy crisis.
Sterling has become extremely sensitive to any shifts in global risk sentiment as a result of a growing trade deficit and a large government deficit in the UK. Since investors already know what the BoE will do, the main variable for the pound may be how stock markets perform.
Australia & New Zealand
There has been a significant decline in the value of the Australian and New Zealand dollars since the release of disappointing Chinese economic figures for July. As China is one of Australia and New Zealand’s most important export markets, it is likely that the weak performance of China’s economic data will be reflected in trade data for the two nations.
According to the market, the RBA is widely expected to hike rates 50 basis points to 2.35% at the September rate meeting in addition to the current rate of 1.85% due to inflationary pressures. Among the short-term risks are the Fed, the recent decline in commodity prices, and the weakness of the Chinese economy. This week, we’ll be looking at PMIs.
As market expectations, the RBNZ increased interest rates by 50 basis points to 3.00% on August 17, marking the 4th consecutive rate increase in this round of rate hikes. On Wednesday, we will have the retail sales report for the week.
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