Whatever you say, say something!
The main currency pairs are treading water ahead of Fed Chair Warsh’s appearance at Jackson Hole today. The euro continues to trade around $1.1650 against the dollar, sterling remains just below the $1.36 level against the US currency, while EURGBP is largely unchanged at about £0.8575. Though markets are eagerly waiting to hear from Warsh, they are not sure what to expect him to say. Ideally, they would like him to outline his view of the outlook for growth and inflation and, most importantly, the associated implications for monetary policy. They may not get that however, given the new Fed Chair’s preference for refraining from ‘guiding’ markets about the path for interest rates. At the same time though, there is a risk that the less he says, the more markets might ‘punish’ him via a spike in US bond yields (at a time when the latter have been quite volatile). Let’s see what happens!
It was a damp squib in the main government bond markets yesterday with yields flat to marginally higher on the day. In equity markets, the Nasdaq led gains in US stocks – following the positive earnings results from Nvidia on Wednesday – rising by more than 1.6%, but European stocks underperformed noticeably, with the Stoxx Europe 600 shedding around 0.7% on the day.
ECB member Radev says “September remains open (regarding a rate hike), but based on what we know today, another measured step deserves serious consideration,” adding that “waiting until second-round effects (on inflation) are fully visible could mean acting too late.” He also says that October and December will be ‘live’ meetings for a rate move. Meanwhile, data released earlier this morning show headline inflation in France picked up in August to 2.7% from 2.4% in July, while headline inflation in Spain accelerated to 4.5% from 3.9%. Inflation data for the Euro area as a whole are due Tuesday next week.
Fed’s Hammack repeats her call for an increase in interest rates, saying “it’s appropriate for us to put some (monetary policy) restraint there to help bring inflation back down to target.” She notes that “the longer inflation stays above our (2%) objective, the harder it will be for us to bring it back down.”
For the day ahead, the focus will be on Warsh’s speech at Jackson Hole. Economic data-wise, the main releases scheduled are the European Commission’s Economic Sentiment Indicator (ESI) for August in the Euro area and a final reading for the University of Michigan’s August consumer confidence index in the US.