The focus for the week ahead will be on growth and the US Federal Reserve Jackson Hole Policy Symposium to be held on Friday 27 Aug.
The growth outlook is under question with the Delta virus gaining a foothold across several countries, including the US. This will be an important test for vaccination strategies. US growth already appeared to be moderating as some fiscal measures have started to roll off. But the concern from Dallas Fed Kaplan late last week (who has been a strong proponent of normalizing monetary policy), the FOMC minutes, and the rescheduling of the Jackson Hole symposium from in-person to online provide some cautious signals.
From the FOMC minutes, a taper announcement seemed unlikely as early as the Jackson Hole meeting this week but is still ‘live’ for this year. Discussions focused on the impact on financial conditions, the timing, and the composition of the taper. The standard for ‘significant further progress’ has not yet been met for the labour market but could be met by the end of the year. Concerns were raised over the interpretation of a taper announcement and what it means for the path of rates (the FOMC wants to keep QE taper and rates normalization independent). Risks to the outlook remain – with a slowing vaccination rate and the question of the impact on growth from Delta infections.
In NZ, the RBNZ held off on its anticipated rate increase last week as level 4 restrictions were imposed across the country. The RBNZ Board noted that it will likely return to its normalization stance.
The Committee agreed that their least regrets policy stance is to further reduce the level of monetary stimulus so as to anchor inflation expectations and continue to contribute to maximum sustainable employment. They agreed, however, to keep the OCR unchanged at this meeting given the heightened uncertainty with the country in a lockdown. https://www.rbnz.govt.nz/news/2021/08/official-cash-rate-on-hold-at-025-percent
In Australia, the outbreak has gone from bad to worse and this will be reflected in weaker economic data for Q3.
The prelim PMIs for Aug will provide the first view of the impact of renewed restrictions and outbreaks on the growth momentum. Also, out this week will be the US PCE data for July including the Fed preferred measure of inflation and the final read of the University of Michigan consumer sentiment for Aug.
The US Treasury will settle $260bn in ST Bills and FRN’s, raising approx. $2bn in new money. Approx. $18bn in ST Bills will mature on the Fed balance sheet and will be rolled over. The US Treasury will auction the 2yr, 5yr, and 7yr Notes this week – to settle on 31 Aug next week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
