Sat, Nov 27, 2021 @ 20:40 GMT
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Fed Chair Powell, The Floor Is Yours

Market movers today

  • The key focus today will be Fed chairman Jerome Powell’s speech at Jackson Hole. The biggest discussion among Fed watchers has been whether the Fed will announce some sort of tapering plan in connection with the Jackson Hole seminar. We think it is a bit too early, as the next jobs report is due out on Friday next week, so the Fed has more information about the economic impact of the delta outbreak. So our base case is no major new policy signals this time around. A change is more likely in connection with the September meeting in three weeks.
  • Ahead of the speech we get releases on US core PCE inflation and US personal spending. Core PCE inflation is the main number the Fed is focusing on but it is expected to mirror the release we had already earlier this month on core CPI inflation. It showed a moderation in the monthly gain in core prices. The personal spending will give more information on whether US goods consumption is starting to level off from the very high levels. It will also be interesting to see if the spread of the delta variant is hitting service consumption.
  • Norwegian retail sales in July is due out this morning.

The 60 second overview

Hawkish FOMC members: The usual suspects (Fed’s Kaplan, Bullard, and George) were quite hawkish yesterday (ahead of Fed Chair Powell’s speech today) supporting tapering “sooner rather than later”. That said, none of them are among the most important FOMC members.

Who will be the next Fed chair? President Joe Biden soon needs to decide whether to stick with Jerome Powell or find a replacement (most likely Lael Brainard). A new story suggests that Biden is considering a team consisting of Powell as Chair and Brainard as a chief regulator. We do not think the Fed’s policy reaction function will change if Powell is replaced by Brainard but given that we prefer independent central banks, it is a bad sign if President Biden (like former President Trump) replaces the incumbent chair.

Equities: Equities in small moves lower yesterday as investors nerved themselves ahead of Jackson Hole. Most sectors in red, but real estate and utilities among relative outperformers. VIX snapped the downward trend and rose slightly below 20. US closed lower after three record setting sessions this week. S&P 500 -0.6%, Dow -0.5%, Nasdaq -0.6% and Russell 2000 -1.1%. Asian markets are in muted trading this morning but US futures slightly higher.

FI: It was a bit of a rollercoaster ride yesterday as European bond markets were trying to find its footing after the comments from de Guindos and Lane earlier on Wednesday.

FX: Yesterday was another quiet day in the FX markets. USD/JPY moved above 110.

Credit: The credit market pulled back slightly yesterday. Itraxx main widened by 0.4bp to +46bp, while xover widened by 1.5bp to +233bp.

Nordic macro

In Norway, retail sales levelled off in June after a big leap the previous month. With pretty much everyone holidaying within the country, we expect another good month for consumer spending in July. With consumption shifting more towards various types of services as the coronavirus restrictions are lifted, we nevertheless expect retail sales to fall 2% m/m in July.

In Sweden, the government released a new forecast yesterday with slightly lower growth in 2021 (now 4.3 % cal adj) and instead higher in 2022 (3.5 %) boosted by a quite significant SEK 74 bn in “reforms” (ca 1.5 % of GDP). Recall 2022 is an election year. The big hurdle is how to get it through the Riksdag given the current political turmoil with a new PM in November.

July hours worked suggested a good start to Q3 by rising 0.9 % mom, sa. Today, however focus is on the August NIER (KI) monthly confidence survey. Last month showed all time highs for the overall Economic Tendency Indicator and manufacturing confidence, hence, don’t be surprised if there is a set-back this month (peak growth). Eyes will also be on Q2 GDP and its composition. The GDP indicator suggests +0.9 % qoq sa, however, we see a downside from consumption and inventories (out forecast +0.7 % qoq/9.1 % yoy).

Riksbank buys SEK1bn in linkers.



Danske Bank
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