The Jackson Hole Symposium ... Come on Yellen give us the goodies!

Week Commencing Monday 18th August 2014


This Week in Brief



  • In the UK we have the Bank of England minutes coupled with Thursday’s Retail Sales report. We expect no votes to increase base rate this month, however a more hawkish stance will confirm to markets that a hike is on its way. Retail Sales are expected to increase for a second month in a row, with consensus currently at 0.4 percent for the month.

  • In the US we expect a slightly more hawkish FOMC meeting, although they will stop short of detailing a timeframe for rate hikes. At the Jackson Hole Symposium we do not expect Janet Yellen to unveil anything out of the ordinary (unlike her predecessor).

  • In Europe we expect EZ PMI’s to come in lower across the board, perhaps with the exception of French Manufacturing which is already in negative terriroty. Mario Dragho’s Keynote speech at the Jackson Hole Symposium is likely to be the event of the week, with emphasis on whether he will unveil any form of extra ordinary measures such as LTRO’s, negative rates or potentially a dreaded quantitative easing program.


Overriding Market Themes


The UK’s economic growth in the year to the end of June has been revised up to 3.2 percent, according to figures published by the Office of National Statistics last week. A preliminary estimate by the ONS in July had shown an increase of 3.1 percent in the three month period when compared to the previous year, while quarter on quarter product growth for the remained unchanged from the preliminary estimate of 0.8 percent. These preliminary figures confirmed that the size of the UK economy has finally surpassed the level recorded in the pre-crisis peak of early 2008, a major milestone for the Con/Lib coalition in the recovery process. During the second quarter, the size of the economy was estimates to be 0.2 percent above its pre-crisis peak, which hit the economy in the first three months of 2008. From its beginnings, the economic crisis shaved off a staggering 7.2 percent of UK GDP. While obviously excellent news for the UK economy, there remains some continued structural issues in the form of sluggish wage growth and high youth unemployment. All in all however, it does appear that the UK has finally erupted from what has been one of the worst economic downturns in the past 100 years.


Meanwhile across the channel, the German economy’s loss of momentum and its 0.2 percent contraction in the second quarter has hit the headlines, not least at the ECB. This release, combined with weakness in other large countries like Italy and France which on Thursday halved it growth forecast for this year, is likely to raise new doubts about the recovery in the Eurozone. In further bad news for Germany, annual German inflation fell to 0.8 percent in July, its lowest level since February 2010. The release does little to stem the fears that the Eurozone recovery, led by Germany, has been derailed.


GBP This Week


We have a fairly quiet week ahead for the UK, with the release of retail sales and the Bank of England minutes the only releases of note. Starting therefore with the Bank of England minutes, we are hoping they will provide a clearer view of what specific outlooks the MPC are looking for with regards to a possible rate hike. The most notable of any such potential move would be a vote for a rate hike, which although is unexpected would cause some considerable price movement.


Moving to Thursday’s retail sales release, where we expect to see the figure pick up to around 0.4 percent from the 0.1 percent seen last month. Historically this figure is volatile, and has the propensity to move between growth and contraction extremely quickly. Should we see another positive posting therefore for the UK, we expect markets to take it as a good sign and potentially begin to reverse some of Sterling’s marked declines over the month.


USD This Week


We also have a reasonably quiet week for the US economy, with the FOMC meeting and the Jackson Hole Symposium likely to take centre stage. The Symposium is an annual meeting that brings together the world’s central bankers, academics, bankers and politicians to discuss important economic issues, which this year surrounds re-evaluating labour market dynamics. From a US perspective, the most important part of the show is Janet Yellen’s keynote speech on Thursday, as this show has been a previous stage upon where Ben Bernanke unveiled two separate rounds of bond buying. We doubt that Yellen will be as “gun-ho” as her predecessor however any clarification on interest rate hikes are likely to cause some significant market movements, either to the upside or downside depending on where her timescales lye.


 Prior to the Symposium, we expect the release of the last FOMC meeting on Wednesday. We doubt that the minutes will contain anything concrete in terms of rate movements, however we look for a more hawkish stance towards monetary policy. Should we see a slight shift in this direction, markets should have the confidence that a hike is just around the corner.


EUR This Week


In Europe we will be watching Thursday’s PMI releases which have the potential to, in some degree, turn around the regions fortunes after the disappointing GDP releases last week. Unfortunately, with Russian sanctions starting to bite, and Russia making up a considerable part of Eurozone demand, there is a high likeliness that these will be another poor set of PMI’s. With this in mind, we expect all major PMI indices to continue to decline, perhaps with the exception of the French manufacturing figure which should expand (however remain in the sub 50.0 region).


Finally, ECB President Mario Draghi is set to provide his keynote speech at the Jackson Hole Symposium on Friday, where markets are hoping to gain further insight into his outlook for employment and monetary policy. With Eurozone inflation continuing to remain his primary concern, markets will want further implementations of his extra-ordinary policy measures. These include either a range of LTRO’s, negative deposit rates or an end to the sterilisation of bond purchases. Failing that, Mario Draghi will have to finally join the likes of the Bank of England and the Federal Reserve and unveil a quantitative easing program. This is unlikely at the moment (and politically unfeasible!), however any hints that he will be willing to take further action is needed and what thresholds need to be reached to do that, will impact markets. 

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