Markets: What is most important in the week ahead? – Nordea Markets

In a relatively light data week, meeting minutes from several of the big central banks will take centre stage, while also European PMIs will be scrutinised and the week will conclude with the yearly Jackson Hole symposium hosted by the Kansas Fed, points out the research team at Nordea Markets.

Key Quotes

“The week kicks off with a quiet data calendar on Monday.”

“On Wednesday, the UK inflation report hearing in the parliament will be interesting to watch, as Mark Carney will likely face questions on how the Bank of England will react to a potential breakdown in the Brexit negotiations. Just this week, Fitch threw in the towel on creating a base case for the Brexit outcome. Uncertainty remains elevated.”

“In the evening, the FOMC meeting minutes will be published. At the most recent meeting the FOMC raised its description of the economy from “solid” to ”strong”, laying the groundwork for further rate hikes in September and December. We expect the FOMC minutes to solidify this message.”

“On Thursday, the PMIs from the Euro area will be published. We only expect a small setback compared to last month, despite relatively weak European financial markets so far in August. The softening of the trade tensions between the US and EU counts as a positive. Also the US Markit PMI will be published (usually not a key figure that receives a lot of attention). We expect the PMI releases to back our story that US momentum will drop quicker than the European.”

“Finally, the Jackson Hole symposium will kick off Thursday evening (the programme will not be revealed until then) under the title “Changing Market Structure and Implications for Monetary Policy”. One topic that could prove important is the global side effects of the current balance sheet policy from the Fed. It is no secret that several EM central banks have voiced their concerns over the negative spill-over effects from a tighter USD liquidity in EM markets due to the EM dependency on USD funding. So far Jerome Powell has decided to look through the EM turmoil (he may have to reconsider, if we start to see re-spillovers to the US later this year).”

“However, it should not be ruled out that the Fed starts to look towards global developments. In the midst of the Russian/LCTM turmoil in 1998 Greenspan said that “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress”. Also Jannet Yellen opted for an approach closer to Greenspan’s under her reign. So far the inflationary momentum in the US looks too strong for Jerome Powell to consider anything but the domestic outlook.”