Key Events This Week: All Eyes On The Jackson Hole Webcast
Even though the end of summer is fast approaching, markets are likely to heat up from here as we approach the Jackson Hole symposium and Fed Chair Powell’s speech later in the week. On top of that, we’ve got the release of the August flash PMIs to look forward to today, which will give us an initial indication of how the global economy has fared into the month. And, as Deutsche Bank’s Henry Allen adds, Covid developments will remain in focus as a number of countries grapple with a renewed wave of the virus, which was a major factor in last week’s selloff across multiple risk assets.
Indeed, those risks from Covid have already had an impact on this week’s highlight at Jackson Hole, with the Kansas City Fed saying last Friday that the symposium would be moving over to a virtual format, rather than the in-person gathering that’d been planned. Of course this is just one event, but it’s indicative of the broader shift in sentiment we’ve seen in the US over recent weeks as the virus has surged once again, with the University of Michigan’s preliminary consumer sentiment index for August having fallen to its lowest level in nearly a decade.
In terms of what to expect at Jackson Hole, the big question is what Powell might say about a potential timeline for when the Fed could begin to taper their asset purchases, so all eyes will be on whether he gives any hints about that. The focus on that for the coming months has been heightened after the July FOMC minutes said that “most participants” thought that “it could be appropriate to start reducing the pace of asset purchases this year”, so long as the economy evolved broadly as expected. However, DB’s economists are of the view that Powell’s speech on Friday will largely mirror his remarks at the press conference following the July FOMC meeting, as well as in the minutes, and so are not expecting a strong signal with respect to the Fed’s next gathering in September. Their view is instead that a tapering announcement is likely to come at the following meeting in early November. Separately, they’re also expecting Powell will emphasize the point from the minutes that there isn’t a mechanical link regarding the timing of tapering and any hikes in the federal funds rate, as well as to reiterate the transitory narrative when it comes to inflation.
Staying on the Fed, over the weekend we had a potentially significant piece of news on the central bank’s leadership from Bloomberg, who reported that Treasury Secretary and former Fed Chair Yellen had told senior White House advisors that she was in favor of reappointing Chair Powell for a second term. The people cited in the article said that President Biden was likely to make his decision around Labor Day (September 6), but was yet to make one yet. Powell’s four-year term comes to an end this February, so assuming the decision is anything like the last couple of timelines, we should likely hear an announcement before the end of the year on this, with the Senate required to confirm whoever’s nominated. DB’s global head of economic research, Peter Hooper, put out a note a couple of weeks back making the case for why Powell’s reappointment had a high probability.
With the delta variant continuing to spread, the flash PMIs for August today will help us work out the extent of the impact on the global economy. Overnight we’ve already had the releases from Japan and Australia with Japan’s composite reading falling to 45.9 from 48.8 last month as the Covid restrictions got expanded to more regions. And as we’ve seen in the past, much of that decline came from a drop in the services PMI (at 43.5 vs. 47.4 last month), whereas manufacturing was relatively stable at 52.4 (vs. 53.0 last month). Australia’s composite PMI was also in contractionary territory at 43.3 (vs. 44.2 last month) as amidst a worsening Covid situation there as well. The numbers from the US and Europe will be out later on, though the US composite PMI has already been edging down for a couple of months now, coming in at 59.9 in July, which is still strong but some way beneath the 68.7 reading back in May.
In the political sphere, there are now less than 5 weeks to go until the federal election in Germany, which will come into increasing focus over the month ahead given the implications for EU as well as domestic policy. Moreover, with Chancellor Merkel standing down, there’ll be a change in the country’s leadership regardless of who forms a coalition. Over the weekend there were further indications that the race is tightening up, with an INSA poll showing Merkel’s CDU/CSU bloc tied with the centre-left SPD on 22% each. That’s the first time that the SPD have been in (joint) first place in an opinion poll since back in early 2017 when they got a temporary bounce after selecting Martin Schulz as their chancellor candidate. It’s also a reasonably marked shift from the previous week’s INSA poll when the CDU/CSU led the SPD by 25% to 20%, and fits into the broader pattern of strengthening support for the SPD in recent weeks. However, the Greens slipped back further onto 17%, which echoes other polls putting them in third place around the high-teens recently, and is a big drop back from the spring when they briefly were polling in first place in the high-20s.
Elsewhere on the political scene, it’ll be worth watching out for what’s happening in the US, as the House of Representatives returns from their summer recess today with Democrats seeking to pass their economic agenda into law. As a reminder, that includes a $3.5tn reconciliation bill, along with the bipartisan infrastructure package that the Senate has already passed. However, 9 moderate House Democrats have said they won’t pass the reconciliation bill unless there’s a vote on the infrastructure bill first, whilst those on the progressive wing have said they won’t vote for the infrastructure package without the reconciliation bill. So how this plays out over the coming days and weeks could have big implications as to how much new spending gets passed.
Here is a breakdown of key events this week day by day, courtesy of Deutsche Bank
Monday August 23
Data: August flash manufacturing, services and composite PMIs for Australia, Japan, France, Germany, Euro Area, UK and US, Euro Area advance August consumer confidence, US July existing home sales, July Chicago Fed national activity index
Tuesday August 24
Data: Germany final Q2 GDP, US August Richmond Fed manufacturing index, July new home sales
Earnings: Medtronic, Intuit
Politics: G7 leaders to meet virtually to discuss Afghanistan.
Wednesday August 25
Data: Germany August Ifo business climate, US preliminary July durable goods orders, core capital goods orders
Earnings: Salesforce, Autodesk, Royal Bank of Canada
Thursday August 26
Data: Germany September GfK consumer confidence, Euro Area July M3 money supply, US weekly initial jobless claims, Q2 second estimate GDP, August Kansas City Fed manufacturing activity
Central Banks: Jackson Hole symposium begins, Bank of Korea monetary policy decision, ECB publish minutes from July meeting, ECB’s Villeroy speaks
Earnings: Dollar General, HP
Friday August 27
Data: China July industrial profits, France August consumer confidence, Italy August consumer confidence, US preliminary July wholesale inventories, July advance goods trade balance, personal income, personal spending, final August University of Michigan consumer sentiment index
Central Banks: Jackson Hole symposium continues, Fed Chair Powell speaks
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Finally, focusing on just the US, Goldman notes that the key event this week is Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium. The key economic data releases are the durable goods report on Wednesday, the Q2 GDP report on Thursday, and core PCE inflation on Friday.
Monday, August 23
09:45 AM Markit Flash US manufacturing PMI, August preliminary (consensus 62.5, last 63.4): Markit Flash US services PMI, August preliminary (consensus 59.0, last 59.9)
10:00 AM Existing home sales, July (GS -2.0%, consensus -0.4%, last +1.4%): We estimate that existing home sales declined 2.0% in July after increasing 1.4% in June. Existing home sales are an input into the brokers’ commissions component of residential investment in the GDP report.
Tuesday, August 24
10:00 AM Richmond Fed manufacturing index, August (consensus 25, last 27)
10:00 AM New home sales, July (GS +5.0%, consensus +3.6%, last -6.6%): We estimate that new home sales increased by 5.0% in July, reflecting mean-reversion and firm home-building.
Wednesday, August 25
8:30 AM Durable goods orders, July preliminary (GS -0.5%, consensus -0.2%, last +0.9%); Durable goods orders ex-transportation, July preliminary (GS flat, consensus +0.5%, last +0.5%); Core capital goods orders, July preliminary (GS flat, consensus +0.5%, last +0.7%); Core capital goods shipments, July preliminary (GS +0.5%, consensus +0.7%, last +0.6%): We estimate durable goods orders fell 0.5% in the preliminary July report, reflecting somewhat fewer commercial aircraft orders. We estimate unchanged core capital goods orders and +0.5% for core capital goods shipments, a slowdown from the recent growth pace reflecting supply chain disruptions and a possible drag from the Covid resurgence abroad.
Thursday, August 26
08:30 AM Initial jobless claims, week ended August 21 (GS 340k, consensus 350k, last 348k); Continuing jobless claims, week ended August 14 (consensus 2,785k, last 2,820k); We estimate initial jobless claims declined to 340k in the week ended August 21.
08:30 AM GDP, Q2 second (GS +7.1%, consensus +6.7%, last +6.5%): Personal consumption, Q2 second (GS +12.5%, consensus +12.3%, last +11.8%): We estimate a six-tenths upward revision to Q2 GDP growth to +7.1% (qoq ar). Our forecast reflects the upward revisions to retail sales and inventory data since the advance Q2 reading, as well as firmer-than-expected services consumption details in last week’s Census QSS survey.
11:00 AM Kansas City Fed manufacturing index, August (consensus 25, last 30)
Friday, August 27
08:30 AM Advance goods trade balance, July (GS -$89.5bn, consensus -$90.7bn, last -$91.2bn); We estimate that the goods trade deficit decreased by $1.7bn to $89.5bn in July compared to the final June report, reflecting weakening imports.
08:30 AM Wholesale inventories, July preliminary (consensus +1.0%, last +1.1%); Retail inventories, July (consensus N.A., last +0.3%)
08:30 AM Personal income, July (GS -0.4%, consensus +0.1%, last +0.1%); Personal spending, July (GS +0.2%, consensus +0.4%, last +1.0%); PCE price index, July (GS +0.45%, consensus +0.4%, last +0.45%); Core PCE price index, July (GS +0.37%, consensus +0.3%, last +0.48%); PCE price index (yoy), July (GS +4.17%, consensus N.A., last +3.91%); Core PCE price index (yoy), July (GS +3.61%, consensus +3.6%, last +3.39%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.37% month-over-month in July, corresponding to a 3.61% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.45% in July, corresponding to a 4.17% increase from a year earlier. We expect a 0.4% decrease in personal income and a 0.2% increase in personal spending in July.
10:00 AM University of Michigan consumer sentiment, August final (71.2, consensus 71.0, last 70.2); We expect the University of Michigan consumer sentiment index increased by 1.0pt to 71.2 in the final July reading.
10:00 AM Fed Chair Powell (FOMC voter) speaks; Federal Reserve Chair Jerome Powell will deliver a speech titled “The Economic Outlook” at the Kansas City Federal Reserve Bank’s annual Economic Symposium in Jackson Hole, hosted as a virtual event. The topic of the conference this year is titled “Macroeconomic Policy in an Uneven Economy.” Prepared text and media Q&A are expected. The event will be livestreamed.
Source: DB, BofA, Goldman,
Mon, 08/23/2021 – 08:59