Markets focus on upcoming Jackson Hole symposium

• The central bankers’ conference at Jackson Hole, Wyoming kicks off today with Fed Chairman Jerome Powell scheduled to speak tomorrow (Friday). The market will be looking for signals that the Federal Reserve could start to taper asset purchases before the end of this year, although the earliest that a formal announcement can be made is at the September FOMC meeting. 
• US durable goods orders declined by -0.1% m/m in July, a smaller decline than expected. Excluding the volatile transport (aircraft) orders, durable goods spending rose 0.7% m/m last month, but this appears to be driven by increased defence orders.  If these are stripped out, business equipment investment appears to have been flat in July, signalling a slowdown from the strong growth of business equipment investment in Q2.
• Germany’s IFO business climate index fell to 99.4 in August from 100.8, coming in below forecasts. The main driver was the weakness in the expectations component which may reflect increasing concerns about the delta variant of the coronavirus and continued supply chain disruptions.  The current conditions index increased slightly to 101.4 from 100.4.
• Bank deposits in the UAE grew 1.8% m/m and 2.3% y/y, the strongest annual growth since February.  Gross loans grew 1.0% m/m – the most since March 2020 – but were down -1.2% y/y.  Private sector loan growth increased 0.4% m/m but was also lower on an annual basis at -2.3% y/y.     

Today’s Economic Data and Events

12:00 EZ M3 money supply (Jul) forecast 7.6% y/y prev. 8.3% y/y

16:30 US initial jobless claims (21 Aug) forecast 350k prev. 348k

16:30 US Q2 GDP (second estimate) forecast 6.7% prev. 6.5%

19:00 US Kansas Fed manufacturing activity index (Aug) forecast 25 prev. 30  

Fixed Income

• Yields on 10-yr USTs rose by 4.6bps yesterday, to close at 1.339%, a level last seen two weeks earlier. Markets are focusing on the Jackson Hole symposium for any signal but the key takeaway for the minute appears to be that the only feasible direction is for tighter policy, it is just a question of how soon. This is more in question than it was after the FOMC minutes following a moderation of views by previous key supporter of sooner than later tapering, Robert Kaplan.
• South Korea’s central bank hiked its benchmark rate by 25bps yesterday, taking it from the record low of 0.5% to 0.75%. It was the first major Asian economy to do so, with concerns over soaring credit demand taking precedence over the rise in coronavirus cases seen in the country.

FX

• FX markets were quiescent ahead of any material news out of the Fed’s virtual discussions this week, with the dollar index closing down just -0.07% to 92.825 yesterday. It is currently up by the same amount this morning.
• GBP added 0.3% against the greenback yesterday to 1.3763, but it remains some way off the levels seen back in June. Likewise for the euro which gained 0.1% yesterday to 1.1772. Any hint of imminent tapering, alongside the dollar’s haven status as global Delta cases rise, would reinforce the recent dollar strength.

Equities

• Chinese equities continued their recovery yesterday with the Shanghai Composite adding 0.7%. The Nikkei closed flat, while South Korea’s KOSPI added 0.3% despite virus concerns as the central bank hiked rates. The direction has changed today ahead of the Fed’s Jackson Hole symposium, with Asian stocks generally trending lower in early morning trading.
• Movements were fairly limited elsewhere yesterday. In the US both the S&P 500 and the NASDAQ hit new record highs again with gains of 0.2% each. The Dow Jones added 0.1% and remains just off its previous high still.
• In Europe, the DAX lost -0.3% and the FTSE 100 added 0.3%. The CAC added 0.2%.

Commodities

• Oil prices continued their rally yesterday as they recovered from the sharp slump seen last week. Brent futures closed 1.7% higher at USD 72.3/b, while WTI added 1.2% to a USD 68.4/b close.
• Both benchmarks are ticking down in trading this morning as fears over the spread of the Delta variant and what this might mean for demand return to the fore.
• According to EIA data, crude stockpiles in the US declined by 2.98mn bbl last week, while gasoline stockpiles fell 2.24mn bbl.

Click here to download charts and tables