Key events for the week ahead – Jackson Hole Economic Symposium
Recap from last week
The minutes of the Jul FOMC meeting quelled the idea of a dovish Fed pivot at this time. The minutes showed that moving to a “restrictive stance of policy was required” given the elevated level of inflation. The Fed is still concerned about the upside risks to inflation and of inflation expectations becoming unanchored. Even though the Jul CPI had moved lower, the FOMC noted that declines in the price of oil and other commodities “could not be relied on as providing a basis for sustained lower inflation”.
But as policy tightens further, the FOMC said that it would be appropriate to “slow the pace of increases” as it assesses the cumulative impact of hikes/tightening. Once policy was “sufficiently restrictive” it may also be appropriate to maintain that level to ensure inflation was firmly on a path back to 2%. In other words, rates may stay higher for longer, depending on the path of inflation and the economy. The unanswered question; what is the ‘appropriate’ level of restrictive policy rates?
Data out of the US was mixed last week. The recent negative trend in initial jobless claims has reversed somewhat. The weekly growth in initial claims remains around +250k. US headline retail sales growth for Jul was slightly lower than expected – led by declines in motor vehicles and gasoline, noting that gasoline prices declined by over 7% in the month. Ex autos and gasoline, retail sales increased by +0.7% in Jul (+0.7% in Jun). The regional manufacturing surveys for Aug continued to reflect weakness in new orders. But industrial output and, specifically, manufacturing output growth improved in Jul. Data on the US housing market continued to disappoint with conditions deteriorating further in Aug and existing home sales also falling notably in Jul.
Inflation outside of the US is still extremely elevated as energy prices in the UK and Europe continue to rise. UK CPI in Jul was +10.1% (expecting +9.8%). UK core CPI was also higher at +6.2% (expecting +5.9%). Eurozone CPI for Jul was confirmed at +8.9% and +0.8% in the month. Germany’s PPI for Jul surprised to the upside, increasing by 37.2% over the year (expecting +32.7%) and increasing by over 5% in the month. This was led by but was not limited to, further increases in electricity and natural gas prices. The headline CPI for Japan also increased more than expected in Jul by +2.6% (expecting +2.2%). This was led mostly by higher food prices, but also a smaller contribution from prices for electricity & gas charges, clothing, and communications.
The outlook for the week ahead
The annual Kansas City Fed Jackson Hole Symposium will be the main event this week – “Reassessing Constraints on the Economy and Policy”. US Fed Chair Powell will speak on Friday morning. We expect a continued hawkish tone. Chair Powell isn’t likely to provide any detail for the Sep FOMC meeting, given another CPI and payrolls report is due before then.
US PCE inflation for Jul will be released on Fri, along with the University of Michigan consumer sentiment reading for Aug.
The prelim S&P PMIs for Aug will be released this week and will provide a further guide on private sector momentum compared to Jul. Growth is expected to ease slightly, especially across Europe and the UK.
The Minutes of the last ECB meeting will also be released.
This week, the US Treasury will auction and settle approx. $313bn in ST Bills and 2yr FRN’s, raising approx. $102bn in new money. Treasury issuance will be supplemented with the addition of a 21-Day CMB ($60bn). The US Treasury will also auction approx. $126bn in 2yr, 5yr, and 7yr Notes – which will settle on 31 Aug.
Approx. $17bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
