August Week 3, Looking Back and Looking Forward

Jackson Hole, Powell speech to drive sentiment: The Week Ahead

The annual Jackson Hole symposium has arrived, with Jerome Powell set to take center stage once again. Last year, Powell's speech initiated a significant 20% drop in the S&P 500, amplifying the ongoing bear market. His impactful words underscored the importance of his address. Additionally, upcoming retail sales data from the UK, Canada, and the US, along with the earnings reports of select US companies, will provide valuable insights into consumer sentiment.

Reviewing the Previous Week: Global Market Highlights

Looking back to August week 3, the previous week saw notable events across global markets. China experienced a downturn in loan growth, touching its lowest level since 2009. In response, the People's Bank of China executed a 15 basis point cut in the one-year medium-term lending facility (MLF) rate. Premier Li hinted at potential stimulus measures to support China's growth target of around 5%. Meanwhile, the July FOMC minutes hinted at the possibility of further interest rate hikes to counter ongoing inflation concerns. Rising bond yields and a stronger US dollar impacted markets early in the week, leading spot gold to dip below $1900. The AUD/USD exchange rate also faced downward pressure due to rising unemployment and negative job growth. Japan's MOF expressed vigilance over the USD/JPY exchange rate, although the USD eventually broke above 145 against the JPY. China's Evergrande filed for bankruptcy protection, confirming concerns about liquidity issues in Chinese corporations. Inflation reports from the UK and the Bank of Canada revealed higher-than-anticipated figures, placing additional pressure on central banks to consider rate hikes.

Jerome Powell's Address at the Jackson Hole Symposium

Looking forward, the upcoming Jackson Hole symposium, an annual gathering of global central bankers and economists, will feature Jerome Powell, the Chair of the Federal Reserve, as the main speaker. Powell's speech in the previous year's symposium marked a significant policy announcement. In that speech, he outlined the Federal Reserve's intent to combat inflation assertively and swiftly, aiming to bring inflation down to the target rate of 2%. Market reactions to the speech were generally positive, interpreting it as a sign of the Fed's commitment to fighting inflation. However, concerns arose regarding the potential for the Fed's aggressive tightening cycle to trigger a recession. Despite these concerns, the US economy demonstrated resilience, with robust employment figures and higher-than-expected growth in the subsequent year.

Powell's Anticipated Speech and PMIs: Global Economic Indicators

The upcoming symposium holds the spotlight for Jerome Powell's speech on the economic outlook, scheduled for August 25th. Traders await insights into potential changes in the Fed's outlook, especially considering the division among Fed members about the necessity of further rate hikes. Powell's speech possesses the potential to influence various asset classes, potentially causing shifts in market sentiment. Traders are particularly keen to gauge hints about the Fed's stance on future rate cuts. Besides Powell's speech, flash PMIs for different regions, including the US, Europe, Japan, and Australia, are anticipated. These indicators provide forward-looking insights into economic growth and inflation trends. Notably, the composite PMIs have been exhibiting a downward trend recently, potentially impacting central banks' decisions about rate hikes.

China's Loan Prime Rate and Other Notable Developments

Amid ongoing concerns about China's economic performance, attention is drawn to the loan prime rate (LPR) for corporate and household loans. Market watchers speculate that the LPR might be lowered further in a bid to stimulate demand and jumpstart the economy. A recent 15 basis point cut in the medium-term lending facility (MLF) rate by the People's Bank of China led to market turmoil, potentially setting the stage for another aggressive cut in LPR rates. This development is of significant interest, as LPR rates influence mortgage rates and real estate prices. Finally, second-tier data, including inflation reports and retail sales figures, will contribute to shaping market sentiment. The Bank of Canada and the Bank of England are likely to assess inflation and retail sales data to determine the necessity of potential rate hikes. Earnings reports from notable US companies, including GAP, Lowe's, Macy's, and Nvidia, will provide insights into consumer spending and the performance of the US consumer sector. Tokyo's inflation report also holds relevance as a leading indicator for nationwide CPI data in Japan.