A tumultuous week!

In what was a tumultuous week for markets, the euro lost ground against both the dollar and sterling – finishing Friday at circa $1.11 and  91p respectively – as the ECB’s Rehn signalled a “significant and impactful” package of monetary policy stimulus measures at next month’s meeting. This is in the context of subdued economic growth in the Euro Area generally, Germany in particular on the brink of recession, and persistent below target inflation in the zone

The air was thick with talk of recession in the US as the bond yield curve inverted (i.e. long-dated yields fell below short-dated yields) albeit briefly, which when this has occurred in the past has usually been a harbinger of an economic downturn further down the road. 10-yields in the US finished about 20bps lower on the week at 1.55%, bringing their cumulative decline since Trump upped the ante in his trade war with China at the start of this month to the best part of 50bps

Stronger than expected UK data last week provided some respite for sterling, but it’s hard to see it advance much further so long as the threat of a no-deal Brexit in a little over two months remains to the fore. Leaked documents over the weekend highlighted the consequences of such a departure from the EU, which would be negative for the economy and negative for the pound

The highlight this week will be Fed Chair Powell’s speech at the central banking symposium in Jackson Hole on Friday, particularly as the market is now pricing in an aggressive reduction in US interest rates (the best part of 75bps) over the remainder of this year

Data due this week include flash PMIs in the Euro Area and the US (Thursday)