August 23, 2024

“All eyes are on Jackson Hole today, with hotly anticipated speeches from the BoE and Fed bosses in the diary. Yesterday’s PMIs told us broadly what we knew already: the US is still growing, as is the UK, but the eurozone is struggling to gain traction.”

Tim Hallinan – Trading Director

Main Headlines

With just over two months to go until the US election, Kamala Harris officially accepted the Democratic nomination at the final night of the four-day national convention held in Chicago this week. In her speech, she promised a ‘new way forward’ that will include middle class tax cuts and a stronger push for peace in the Middle East.

UK energy regulator Ofgem has raised its energy price cap by 10% beginning in October, to £1,717. The rise in gas prices during the observation window has been blamed on volatile weather and geopolitical tensions in the Middle East, with the market still not fully recovered from the initial spike after the Russian invasion of Ukraine.

GBP

Sterling is trading a touch below its fresh 13-month high against the dollar from yesterday, with speeches from Fed Chair Powell and Governor Bailey on the agenda today. The August PMIs were solid and again outshined the eurozone economy, as the composite figure rose to 53.4 on improvements to both the services and manufacturing indexes. The broad consensus is that growth will slow into Q3 after running at a strong pace in the first half of the year, but the details of the survey were something of a goldilocks story for the Bank of England, who will be glad to see both robust growth and easing cost pressures. While we haven’t heard much from BoE policymakers recently, Bailey’s speech in Jackson Hole this afternoon is unlikely to deliver any significant clarity to markets unfortunately. The MPC has stressed that some further progress on inflationary persistence is needed to really get going in lowering the policy rate, and he is probably relatively happy with the one or two cuts priced in before the end of the year.

EUR

EUR/USD is trading some 0.5% down from Wednesday’s post-Fed-minutes peak. A surprise surge in the services PMIs was quickly pinned down to an Olympics boost in France, and beyond that there were few signs of an impending improvement in the growth indicators. The ECB’s negotiated wages figure also contracted by more than expected, failing from 4.7% to 3.6% in Q2, although many reckon that the drop was in part down to temporary factors. The implied probability for a rate cut in September shot up, though, and stands at 99% this morning, undoubtedly helped by comments from the ECB’s Kazaks at Jackson Hole where he advocated for potentially two more cuts before the end of the year.

USD

The market has eased off on the dollar selling over the past few days and it is consolidating just above a 13-month low. There were some divergent fortunes in the PMI figures – manufacturing slumped to 48.0 while services rose to 55.2. As a reminder, anything above the 50.0 mark in the survey indicates expanding activity, while anything below refers to a contraction. The net figure of 54.1 beat expectations, although some of the details blunted the positive impact on the dollar, with the employment component falling to its lowest since mid-2020 and reinforcing the switch in focus from hot inflation to the rapidly cooling labour market. With Powell’s speech this afternoon the main event today, Fed speakers seem to all be singing from the same hymn sheet this week, which have so far not been supportive the case for bets on a 50bps cut. The September rate cut is a foregone conclusion at this point, but both Collins and Harker used the word ‘methodical’ to describe their desired pace of policy easing. Powell is likely to copy some of their language and could hand some support to the dollar if he does not leave the door open for a 50bps cut, which is currently priced at a 19% probability.

Markets

A squeeze in tech shares dragged the major equity indexes yesterday, with the Nasdaq losing as much as 1.7% in the session and the S&P 500 slipping by 1.2%. A surprise change in CEO at Nestle took its shares down by 3%. Brent crude oil rebounded by 1.4% from its lows, meanwhile.

Main Economic Events (All Times CET)

1:30am: Japanese CPI
2:30pm: Canadian Retail Sales
4:00pm: Fed Chair Powell speaks at Jackson Hole
4:00pm: US New Home Sales
5:00pm: BoE Governor Bailey speaks at Jackson Hole
Jackson Hole Symposium Day 2

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