ACM Update 30-08-22
One man, one speech, eight minutes. Markets had been awaiting Jerome Powell’s speech at the Jackson Hole Symposium on Friday afternoon. The somewhat briefer than expected conference led to a stock market rout in the US late in the day, which spread into Asian markets when they opened after the weekend.
The sleepy Wyoming town hosts the annual Jackson Hole Symposium, attended by central bankers and the world’s leading economists. The event took place last week, with the highlight being a keynote speech from Federal Reserve Chair, Jerome Powell. Such was the significance of the occasion, that frankly there was little else at all happening last week that even came close to being a headline/
Powell’s speech was expected to provide clues as to the future interest rate path of the Federal Reserve. Whilst in some terms non-committal, it gave enough subtle hints for markets to form their own opinions. And boy they did.
At a little over eight minutes, the speech was significantly shorter than what had perhaps been expected. In the Aston offices, there was a unanimous chorus of “Is that it?” at its conclusion. I imagine this was echoed elsewhere in the financial sector too, but it was certainly enough. Expectation had been high that Powell would suggest interest rates would soon need to come back down, to stave off the threat of a recession. However, this was not the rhetoric.
Powell warned that rates will remain high until inflation goes low and stays that way. The move led to a Dollar rally against GBP of 2.5 cents by the time Monday came around. This again took us back down to lows last seen in the early-pandemic times of March 2020. Movements for the last ten days can be seen in the chart below:
Naturally, this is an excellent time to be selling Dollars at the minute, so any clients with such requirements should look to reach out to the Aston team this week to discuss in more detail. Events at Jackson Hole were the main Dollar-focused event until the next Fed meeting at the end of September.
Earlier in the week, US Services and Manufacturing figures came in well below expectation. These had started to intensify the hype that a recession in the States might be on the cards soon, compounded by Preliminary GDP figures for Q2 showing a fall. Powell stole the limelight though and for now, the Dollar train continues on its way, despite dwindling US economic data.
On the UK side of the equation, we didn’t actually see very much at all happening, with Manufacturing and Services PMI Data the only real events. Manufacturing is a cause for concern as the figures showed a considerable drop, whilst Services at least still seem to be in expansion territory.
Besides that, very little of note on British soil besides the widely-publicised energy price cap hike causing further concern for both households and businesses. With a Bank Holiday yesterday as we start this week, there isn’t a huge amount to expect as we close out August either.
On the continent, the ECB Minutes from their July meeting were released last week. Whilst tough to read too much into their ongoing approach, it was made clear that they will do whatever they want, whenever they want to in order to keep inflation under control.
The panel was slightly split as to their policy decision last month, with some members wanting to opt for the previously stipulated 25 basis points hike, instead of the 50 which materialised. Currently we expect a further 50 basis point hike in the next ECB Meeting in September. In fact, please see here the next monetary policy announcements from the “big three” banks, as these will naturally be significant events:
European Central Bank – Thursday 8th September
Bank of England – Thursday 15th September
Federal Reserve – Wednesday 21st September
All in all, a very quiet week for Sterling-Euro last week, with the majority of movement coming late on Friday as shown in the chart below:
The week ahead:
Monday – UK Bank Holiday
Tuesday – German Preliminary Inflation, UK Mortgage Approvals (09:30 UK time)
Wednesday – Eurozone CPI Flash Estimate (10:00)
Thursday – US ISM Manufacturing PMI (15:00)
Friday – US Non-Farm Payrolls (13:30)
For this week, other than inflation figures from Germany and the Eurozone, Friday’s Non-Farm Payrolls will be the event of note. Forecasts seem to suggest an additional 295,000 jobs to be added to the US economy in August. If correct, this would be quite a drop from the 528,000 last month, but still well in expansionary territory. A good sign for the US, despite the aforementioned recession concerns.
Another quiet week, possibly. But often those with little in terms of fundamental economic events are the ones where we see the most market movement. Do reach out to the team with any pending requirements you might have, especially those related to selling USD.
Have a great week.