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After another week dominated by political uncertainty, the markets will pivot back to central banking in the coming one with the Jackson Hole symposium taking place at the end of it. The theme of this year’s gathering will be ‘Fostering a Dynamic Global Economy’ and it will feature two key speeches by Fed Chair Yellen and ECB President Draghi. Yellen may discuss the balance sheet unwinding which is expected to be announced next month, and she may also comment on the softer trend in inflation, but she is likely to keep her options open regarding interest rates. The recent mood amongst central bankers about policy tightening has become a little bit more circumspect, causing bond yields to remain heavy, and investors may be disappointed if they expect overt signals about when further monetary tightening might occur.
Dollar whipsaws amidst uncertainty
The dollar continues to be whipsawed by political developments in the US as the departure of Steve Bannon, one of the more controversial advisors to President Donald Trump, was received initially as an opportunity for more establishment figures to have a greater influence over policy making and rhetoric. However, that sentiment had ebbed by the end of the day and US assets generally closed the day in risk-off positions with a weaker dollar, lower Treasury yields and a declining equity market. Despite the removal of Bannon, whose policy positions on trade and diplomacy appeared anathema to establishment Republicans, there are still major challenges for the administration to build bridges with Congress in time to approve a budget and raise the debt ceiling and a general loss of faith from corporate America with Trump's leadership. There is also anxiety among investors and business leaders about the reduced prospects for the implementation of tax reform and plans for huge infrastructure investment.
Emirates NBD Research
