There are several tier-one economic announcements this week, however, all are likely to be somewhat overshadowed by events at the Jackson Hole economic symposium. Markets will be on tenterhooks in anticipation of what Fed Chair Jerome Powell will talk about this week and whether he will significantly steer markets for the beginning of the taper. The US dollar will be a key mover and by association, many major markets will be reactive.
This week we are watching for:
- US – Fed Chair Powell on Friday at Jackson Hole, Flash US PMIs, prelim GDP and core PCE
- Europe & Asia – Flash PMIs, German Ifo and ECB meeting minutes
- LatAm – Brazilian Consumer Confidence and mid-month inflation
- US Flash PMIs (Mon 23rd August 1345GMT).
- US Durable Goods Orders (Wed 25th August 1230BST) -0.8% MoM exp (+0.8% in June).
- US Prelim Q2 GDP (Thu 26th August 1230GMT) upward revision to +6.6% is expected (from +6.3% at the Advance reading)
- US Core Personal Consumption Expenditure (Fri 27th August 1230BST) is expected to increase slightly to +3.6% YoY (from +3.5% in June).
- Fed Chair Jerome Powell speaks at the Jackson Hole Economic Symposium (Fri 27th August, 1400GMT)
Fed chair Powell will dominate anticipation and headlines next week. Historically we have seen the Jackson Hole Economic Symposium being used as an event for Federal Reserve chairs to announce the intention for key monetary policy changes. Given the noises coming out from several FOMC members in recent weeks, and the impressively strong jobs data in the latest Nonfarm Payrolls report, market participants will be preparing themselves for a key steer from Fed chair Powell. Analyst pencils have already been sharpened for expectations of Fed tapering asset purchases to begin later in the year (either December or more optimistically, October). Powell could use this opportunity to seriously guide for that.
On the data front, the week it littered with tier one data. Flash PMIs look set to continue to unwind. If both manufacturing and services components slipped back into the 50s it could be a disappointment. Analysts are looking for an upward revision with the Prelim GDP for what is already a strong looking Q2 growth. The Fed’s preferred inflation gauge, the core PCE is also expected to have continued to increase in July.
- A firm steer from Powell on tapering in December would support USD. Anything sooner would see USD sharply higher. Anything avoiding, or non-commital might be a slight disappointment and may drag USD lower, certainly if tinged with delta variant COVID reasons.
Europe & Asia:
- Eurozone Flash PMIs (Mon 23rd Aug, 0800GMT) Composite slipping to 60.0 in August (from 60.2 in July)
- UK Flash PMIs (Mon 23rd Aug, 0830GMT) Composite slipping to 58.7 in August (from 59.2 in July)
- German Ifo Business Climate (Wed 25th Aug, 0800GMT)
- ECB Monetary Policy Meeting Accounts (Thu 26th Aug, 1130GMT)
The Eurozone Flash PMIs will be key for EUR traders on Monday. The strong recovery laid out through Q2 is just beginning to peter out slightly. Consensus suggests a mild slip back on manufacturing (services steady) will drag on the Composite PMI to 60.0. This is a similar story for UK PMIs with both services and manufacturing slipping slightly to pull the Composite PMI back to 58.7.
Wednesday’s German Ifo Business Climate is also expected to reflect a mild moderation lower to 100.4 (from 100.8), but whilst current conditions are holding up, the expectations component is slipping.
The minutes of a very dovish latest ECB meeting are released on Thursday. The increased inflation forecasts were of mild interest. Perhaps the interest will come in how unanimous the views are when ECB President Lagarde stated “none of us would like to tighten prematurely”.
- EUR & GBP will come under downside pressure if the slips in the flash PMIs are more pronounced.
- Watch also for DAX reaction too.
- Brazil Consumer Confidence (Wed 25th Aug, 1100GMT)
- Brazil mid-month Inflation (Wed 25th Aug, 1200GMT)
There is little of note out of the LatAm region next week. Traders in Brazil will be looking at how consumer confidence is developing. Confidence has been recovering since March, but this improvement is expected to reverse in the coming months.
Mid-month Inflation hit its highest for 17 years last month, impacted by surging electricity costs. Mid-month Inflation increased to 8.6% in July and any further signals of inflation will put added pressure on the central bank to hike rates even further from levels of 4.25% (up from 2.00% earlier in the year).
- BRL has fallen sharply against the USD in the past week, inflation data will certainly add volatility to the market