Market movers today
There are no big market movers today. However, later this week focus will turn to euro area PMI for August and not least the Jackson Hole Symposium hosted by the Kansas City Fed from Thursday-Saturday. ECB President Mario Draghi is set to be among the speakers for the first time in three years. In 2014, he hinted at QE and now the focus is on tapering signals. We expect him to deliver a dovish message and to not give any new communication on the issue of tapering of asset purchases. See Euro Area Research: Draghi returns to Jackson Hole with a dovish message, 18 August 2017. When it comes to the Fed, we do not expect anything dramatic. We look for a repeat of signals that the announcement on balance sheet reduction will come relatively soon (likely September) and that one more rate hike is st ill the base case this year – as signalled by Vice President Bill Dudley last week.
Selected market news
Canadian CPI figures rebounding to 1.2% y/y in July (consensus at 1.2%) on Friday, but remains below the Bank of Canada’s (BoC) forecast of 1.3% for Q3 17. More importantly, the BoC’s preferred measure for core inflation rises further as t he t rimmed mean and median measures rises. The summer months have shown a significant change in the BoC’s rhetoric. As we entered summer, markets were pricing in a 25% probability of a summer cut (among other things on falling inflation). Meanwhile, as summer-end approaches, we have had an actual 25bp hike and the BoC’s communication highlight s a strong belief in the output gap being closed soon, i.e. the belief in inflationary pressures rising eventually requires inflation disappointments before the BoC will stop its hiking cycle. Overall, Friday’s print makes another hike this autumn very likely.
University of Michigan Consumer Confidence for August came out strong on Friday, increasing to 97.6 from 93.4 in June and beating consensus of 94.0 . This adds to signs showing some re-acceleration into H2 17. The details were also strong with US consumer expectations surging. The inflation expectations for one year were unchanged, while 5-10 year inflation expectations fell slightly from 2.6% to 2.5% over the past month.
US equities rebounded slightly on Friday after the White House announced that Stephen Bannon would be leaving his role as Donald Trump’s Chief Strategist, capping a tumultuous period for the Trump Administration. Investors interpret ed Bannon’s departure as a removal of a powerful advocate for a protectionist agenda and direct confrontation with China over trade.
UK Prime Minister Theresa May’s government is preparing to give more details of its Brexit plans this week. The government plans to publish two papers today and more is expected over the following days.
