The past week ended with a pronounced correction on most of the leading stock markets. Records in the minutes of the last FOMC meeting of the Federal Reserve indicated confusion among the committee members, who still see high inflation risks and the likelihood of further rate hikes.
The past week ended with a pronounced correction on most of the leading stock markets. The records in the minutes of the last FOMC meeting of the Federal Reserve indicated confusion among the committee members, who still see high inflation risks and the likelihood of further rate hikes.
Meanwhile, the Chinese market disappointed traders again: the country’s statistics bureau unexpectedly withheld youth unemployment data and key macro data fell well short of consensus, forcing the central bank and other regulators to announce additional stimulus measures.
This week, investors’ main focus will be on the Jackson Hole symposium, where comments from Fed members on future monetary policy are expected. In addition, the preliminary business activity indexes for August and a number of corporate reports, primarily from NVIDIA, will be of interest.
The published minutes of the latest Federal Open Market Committee (FOMC) meeting showed that many Fed policymakers still see significant upside risks to inflation that “may warrant further monetary tightening”. Most committee members also noted the need for more evidence that domestic price pressures are easing and inflation is “clearly returning” to the 2 per cent target. Nevertheless, sentiment within the FOMC ranks at the meeting was very mixed, with several officials in particular expressing a desire to keep the rate unchanged as the risk of “excessive tightening” of monetary policy versus insufficient Fed action became more balanced.
Meanwhile, problems in the Chinese economy continue to become more pronounced. The July macro data block showed that most metrics came in markedly below consensus. In particular, retail sales grew by only 2.5% (y/y) versus the expected 4.5% (y/y), while industrial production grew by 3.7% (y/y) versus the consensus of 4.4% (y/y). In addition, the country’s statistical office unexpectedly stopped publishing data on youth unemployment after the figure reached 21.3% in June.
In an attempt to stimulate economic activity in the Middle Kingdom, the People’s Bank of China (PBOC) and other regulators announced a series of stimulus and supportive measures. On Tuesday, the NBK cut the one-year medium-term lending rate by 15 basis points to 2.5 per cent, while on Friday the Securities Regulatory Commission said it was considering extending trading sessions in the stock and bond markets and promised to cut transaction fees for brokers. The regulator also said it would encourage share buybacks to stabilise stock market prices. On Monday morning, 21 August, the NBK’s annual benchmark lending rate was also cut from 3.55% to 3.45%.
The UK Consumer Price Index (CPI) rose 6.8% (y/y) in July after 7.9% (y/y) in June, matching analysts’ expectations. Core CPI rose 0.3% (m/m), with annual core inflation unchanged at 6.9% rather than falling to 6.8% as economists had expected.
The Q2 reporting season in the US is gradually coming to an end, with 472 companies in the S&P 500 already reporting their results. 79% of them managed to beat analysts’ net income forecasts, which is noticeably higher than the long-term average of 66% and the average of 73% over the last four quarters. The best performing sectors were healthcare and IT, whose representatives beat consensus 92.7% and 91.9% of the time, respectively.
Important events of the coming week:
- From 21 to 25 August, NVIDIA, Intuit, Lowe’s Companies, Medtronic, Analog Devices, Workday, Autodesk, Marvell Technology, Dollar Tree and several other companies will present their results.
- The Fed’s annual symposium in Jackson Hole will take place from Thursday 24 August to Saturday 26 August. Jerome Powell’s speech, scheduled for Friday, 25 August, will attract the most attention. In particular, investors will follow the comments of the official regarding the prospects for further changes in interest rates and monetary policy of the Fed as a whole in the coming months.
- In addition to the comments of the Fed members in Jackson Hole, traders’ interest will also be attracted by the speeches of the head of the FRB Richmond Thomas Barkin, head of the FRB Chicago Austan Goolsbee and member of the Board of Governors of the Fed Michelle Bowman on Tuesday, 22 August.
- Wednesday, 23 August will see the release of preliminary August business activity indices for the manufacturing sectors in Germany (consensus 38.6 points), France (consensus 45.2 points), the eurozone (consensus 42.4 points), the UK (consensus 45 points) and the US (consensus 49.4 points).
- The Central Bank of Argentina will decide on the key interest rate on Friday.
- Other most important macroeconomic publications of the current week include a block of statistics on the US real estate sector (Tuesday-Wednesday), basic orders for durable goods in the US (Thursday), as well as revised data on the dynamics of German GDP in the second quarter (Friday
