Macro Insights - Little news from Jackson Hole

Macro Insights - Little news from Jackson Hole

29 August 2017

Jackson Hole didn’t deliver any major surprises, but N. Korea and Hurricane Harvey pull US yields to new lows

Little news from Jackson Hole. Although the annual Jackson Hole Economic Symposium is a focus for investors ahead of September policy meetings, US Federal Reserve Chair Janet Yellen and ECB President Mario Draghi restricted comments to non-monetary policy issues. Yellen’s speech focused on regulatory issues, arguing in favour of the reforms implemented in the wake of the crisis. She did not signal any concerns on current financial stability and implicitly downplayed the focus in the July FOMC minutes on “elevated” asset prices. Mario Draghi chose to focus his speech on the importance of maintaining openness within the global economy in line with the symposium's theme of "fostering a dynamic global economy”. 

Geopolitical risks and hurricane bring US yields down. A North Korean missile launch and severe flooding in the wake of hurricane Harvey sent US Treasury yields to fresh lows. Key data this week will give some steer to markets ahead of the modest distortions we would expect in the wake of Harvey’s flooding. The ADP employment survey and payrolls look set to confirm the on-going tightening in the labour market and a soft base effect from 2016 should see earnings accelerate. Thursday’s ‘core’ personal consumption expenditure (PCE) inflation should slip to 1.4% in July, despite stability in the ‘core’ CPI reading. This should prove the nadir in the ‘core’ PCE rate with dollar weakness and fading oil price declines starting to lift ‘core’ PCE inflation over the coming months.

Momentum remains strong in the euro area. The Euro area composite PMI for August rose slightly to 55.8 from 55.7, beating expectations (consensus at 55.5). The German PMI increased to 55.7, while the French PMI remained unchanged at 55.6. Both readings surprised on the upside as they were expected to decline. This confirms the solid momentum in the EMU and, as a result, we have revised up our GDP growth forecast to +2.2% and +2% for 2017 and 2018 respectively.

In the UK, Brexit remains at the forefront of minds. On Sunday the Labour Party announced a shift in its view to include a 2-4 year transition process post EU exit and, possibly, to  entertain Single Market participation beyond transition. Brexit Minister David Davis met with chief negotiator Michel Barnier yesterday. Barnier raised concerns at the lack of progress, while David called for “imagination” from both sides. Sterling has continued to weaken. This week sees little data, but household borrowing and confidence will provide the latest update for the all-important consumer sector. Friday’s manufacturing PMI will provide some outlook for manufacturing’s ability to benefit from the softer currency.

Upcoming events:
United States: ADP employment survey (Wednesday), PCE (Thursday) and payrolls (Friday)  
Euro area data : EMU Economic Sentiment (Wednesday), Inflation for Spain, Germany (Wednesday), France, Italy and EMU (Thursday), Manufacturing PMIs for France, Italy, Germany and EMU (Friday)
United Kingdom: Household borrowing (Wednesday), consumer confidence (Thursday), Manufacturing PMI (Friday)

Market and asset types measured by the following indices: Equities = MSCI. Fixed Income = JP Morgan and BofAML. 

The Research & Investment Strategy (R&IS) team at AXA Investment Managers present their views on recent developments and the factors shaping markets over the week ahead. For more information on the R&IS team or any of the above comments, please contact us or follow us on social media for updates throughout the week


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