What will Jackson Hole bring this year?

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The financial markets are eagerly looking forward to this afternoon’s speech by Federal Reserve Chair Janet Yellen at the Jackson Hole monetary symposium. Will she just talk about America’s next rate hike or drill more deeply into the design of future monetary policy? Held every August in this splendid Wyoming ski resort, the symposium is hosted by the Federal Reserve Bank of Kansas and attended by central bankers from all over the world as well as by university and bank economists taking an interest in monetary matters. Jackson Hole has often proved an event where an inkling of future policy was given. For the past two years, for instance, ECB President Mario Draghi afforded the world a glimpse of the monetary policies to be expected in 2015 and 2016.

These are key issues for the global economy and answers are expected to be forthcoming from forum participants. Ben Steinebach Ben Steinebach Head of Investment Strategy

But the financial markets hold their breath for only one thing and that’s the speech given by Janet Yellen this afternoon, i.e. between 4.00 and 5.00 pm Dutch time. The key focus will be the timing of the next interest rate move: will it come as early as next month or will we have to wait until later in the year or even 2017?

Much more important in my view is whether or not she will say anything on the monetary policy framework of the future – and if so, what. Post-financial crisis policy has deeply affected monetary conditions : interest rates are still exceptionally low and many central bank balance sheets have ballooned. To what extent will this restrict room for manoeuvre if recession strikes again? These are key issues for the global economy and answers are expected to be forthcoming from forum participants.

Encouraging outlook for US economy

The world’s financial markets are waiting for these outcomes with bated breath and showed little or no movement in the run-up to the symposium this week. There was plenty of macroeconomic news but this failed to draw much of a reaction in prices.

Purchasing managers’ sentiment has been down a little in August, both in the United States and in the eurozone, although PMIs did stay above 50, thus indicating growth. In Germany, the Ifo index likewise suggested deteriorating business confidence and slower economic growth in the eurozone in the second half of this year. This is not surprising, really, given the political climate (referendums, elections) and the effects of 2015 euro weakness tailing off. Slightly lower consumer confidence is pointing in the same direction.

Prospects for the United States look a lot better even though its purchasing managers index has likewise come down a bit. Robust housing market growth and higher capital goods orders – numbers for which were released in the week – both suggest a pick-up in investment. Corporate inventories, which had been trending down for several quarters, will have to be brought back up to their usual levels and should then contribute to economic growth.

A rate increase would be a logical step, bringing interest rates a little more into line with the state of the US economy. In these circumstances and given improving conditions in the emerging markets, a rate hike should not cause any jitters in the financial markets (much like 2015 and the start of 2016). And it doesn’t really matter all that much, then, whether it comes in 2016 or doesn’t materialise until next year.

Ahold posts solid results

The quarterly results season is virtually over and we have been scraping the bottom of the barrel for corporate news. The best bits came from pharmaceutical giant Pfizer and from Dutch company Ahold, which released its final set of independent results. To start off with the latter: after its merger partner Delhaize had posted solid second-quarter numbers, it was Ahold’s turn in the past week. Excellent figures in the Netherlands helped it to lift its operating profit to EUR 355 million, exceeding expectations by EUR 22 million. Group sales were up 3% to EUR 9 billion. Outside the Netherlands, Ahold’s sales growth in the United States disappointed while that in the Czech Republic beat expectations. The third quarter should see the completion of the merger with Delhaize. The new combine will draw up separate accounts for the first part of the quarter, but switch to joint financial reporting in the second part.

US pharmaceutical behemoth Pfizer is paying USD 14 billion to acquire smaller industry player Medivation. It outbid Sanofi, which had been willing to put up USD 9 billion for this attractive developer of specialist cancer treatments.

The equity markets hardly budged last week. On Thursday, US leading indices ended 0.5% lower on the previous Friday. In Europe, by contrast, most stock markets ended the week slightly higher, with those that had been hit hardest in the preceding weeks recording the biggest gains. Spain and Italy were a case in point, adding 1.8% and 2.5% compared with a European average of 0.5%. Amsterdam saw the AEX end 0.3% higher on Thursday, at 449.94. This morning it recorded a slight loss (-0.1%).

The news to watch will be from the United States

The week ahead will be all about interpreting what happened in Jackson Hole. The end of the week should see the latest figures on US employment in August. Holland’s Beter Bed will be the week’s only corporate results release.

The week ahead will bring the final data on August purchasing manager sentiment, provisional figures for which were published this past week. We also look forward to business and consumer confidence numbers for the European Union and Italy, alongside US consumer confidence as measured by the Conference Board. Lots of data are due in on consumer spending in the United States, Germany, France, Japan (all for July) and Italy (for June). New inflation data will be released for the eurozone, Germany, France, Italy and Belgium. And the final raft of figures will reveal employment trends in Germany and Italy in July, and – the icing on the week’s cake – US jobs and unemployment numbers for August.

But first, let’s wait and see what Janet Yellen has for us this afternoon.


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