Markets to Watch This Week: Will Jackson Hole Provide Any Hints on the Fed?

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Market Moves Over the Past Week

Last week, US retail sales beat expectations across the board. Advance retail sales rose +0.7% MoM versus +0.4% MoM expected, while the control group rose +1.0% MoM versus +0.5% MoM expected. The stronger July read was driven by the Amazon Single day sale – online sales contributed +0.31pp to the monthly rise and have been robust all year. The bond market showed a subdued response, a theme carried over from the July CPI.

In the UK, markets had their hands full with inflation, wages, and the latest retail sales figures. And while there were hawkish headlines to the first two releases, there were dovish undertones throughout. That is because inflation is (mainly) being driven by factors other than wages, while the jump in wages was due to public sector pay growth. Other labour market details are far less hawkish. Adding on the poor retail sales outturn, Henry continues to believe that the Bank of England will not deliver the tightening priced by the market and will have less room to be hawkish come September.

Staying in Europe, the Norges Bank delivered their widely anticipated 25bp hike to 4%. Ben concluded that there was little surprise in the meeting, as the Norwegian central bank acknowledged that data was broadly in line with forecasts and that another 25bp was likely to follow in September. Additionally, they left open the hawkish optionality of hiking past 4.25%.

Turning to New Zealand, the Reserve Bank of New Zealand were also in action, though they kept the overnight cash rate (OCR) steady at 5.5%. Ben noted that while they paused, they chose to raise the OCR forecast. This was a bid to deliver a convincing pause that markets could not take dovishly, safeguarding the possibility ‘that activity and inflation measures do not slow as much as expected’.

Across the ditch, Australia was thrown a double dose of (deceivingly) dovish labour market data. First, the labour force survey continued its odd run of data where two strong releases followed a weak release. This time, the negativity was likely led by the winter (summer) holidays. Second, wages grew +0.8% through the second quarter, below the +0.9% expected. However, Ben points to the hawkishness forthcoming in Q3, on the back of renewed wage agreements. This is one reason he believes the Reserve Bank of Australia will hike again in November.

Lastly, in Canada, headline CPI proved stronger than expected at +3.3% YoY versus +3.0% YoY expected. Meanwhile, markets were on the dot forecasting core inflation. However, it was core inflation momentum that was more important to the market and the Bank of Canada. There, it trickled lower, with CPI median at its lowest since December 2022 while CPI trim is roughly in line with the values since October 2022.

What to Watch

Turning to the week ahead, the calendar is light across much of G10. PMIs will provide the main score for most market watchers. Some hope for something out of Jackson Hole (24-26 August), but most expect little.

Focusing on PMIs, much of the attention will turn to whether the (preliminary) Euro area numbers can continue to negatively separate themselves from those from the US and others worldwide. However, they will fail to carry much weight for central banks given another round of inflation and labour market data is still to arrive.

Turning to Jackson Hole, much of the focus will be on possible hints from Jerome Powell and other Federal Reserve board members. Markets are looking for the neutral rate (r*) to be considered while they will watch the usual media interviews around the conference for hints around forward guidance. As it stands, markets are pricing just a 30% possibility of a hike in November – when Dominique and Mustafa expect the Fed to deliver another 25bp hike.

Elsewhere, we get data from some of the smaller G10 countries. In the Scandis, Norway sees its Q2 GDP data (Tuesday) less than a week after its last meeting. It is expected to be higher than the Norges Bank had forecasted – another reason for them to keep applying the hawkish pressure. Across the border, Swedish unemployment (Friday) data will end the week – a strengthening is expected, but overall, the trend is for a weaker labour market. Down under, retail sales excluding inflation (Tuesday) are expected to confirm the poor credit card spending numbers we had through the quarter.

Viresh Kanabar has worked in the UK financial services industry for over 8 years including in Consulting and Investment Risk. Most recently he launched The Macro Journal Substack where he puts out regular in-depth reports covering all areas of global macro.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-market research.

Photo Credit: depositphotos.com

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