Week of Aug 21

Markets were under pressure from concerns over the housing industry in China and the FOMC minutes suggesting the Fed was still hawkish. The week ahead is relatively quiet as the heads of central banks get together at the annual Jackson Hole Symposium to review monetary policy, followed by durable goods orders in the US.

The Week in Review

The week started on the backfoot after major Chinese homebuilders disclosed that they had failed to make payments on outstanding debt, starting the clock towards potentially another round of major defaults in the world's second-largest economy. The PBOC stepped in, cutting interest rates ahead of schedule in an attempt to boost the market, but sentiment remained depressed through the rest of the week. WTI bulls managed to trim some of the week's losses closer to the week’s end, keeping the battle at $80/bbl real.

A series of US data points pointed to potentially more Fed action, including better-than-expected retail sales, industrial prices rising, PPI coming in above forecast, and the FOMC minutes showing the majority of members were still worried about the forward trajectory of inflation. DXY markets its 5th week of gain, opening up 104.

UK data generally affirmed the outlook that the BOE would have to hike at its next meeting, with stronger-than-expected jobs numbers and core inflation remaining unchanged in July. Markets are now fully pricing in a 25 bps hike, with some economists suggesting that 50 bps could be an option. Footsie lost over 3% and is at risk of revisiting Q42022 levels.

The RBNZ held rates unchanged as expected, signalling that rates would be kept around the current level for at least a year. NZD/USD saw its 5th week of consecutive decline and lost the crucial 60-cent barrier.

Canada saw inflation ticking up on higher fuel prices, but the trimmed mean measure was below expectations, affirming the outlook that the BOC will likely hold rates unchanged at the next meeting. The dollar’s strength saw the USD/CAD pair recording a 5-week winning streak, with bulls eyeing $1.36 next.

Earnings season came to an unofficial close with major retailers reporting better than expected sales, suggesting the US consumer remains resilient, and a majority of economists now see the US avoiding a recession this year. Though, all major indices fell over 2% at different points in time.

Biggest Market Movers

The dollar gained through the week on global concerns as the markets took a decidedly risk-off attitude, sending gold on a 3-week losing streak below $1900/oz. $1890/oz plays a critical role in the weeks ahead. 

Yen popped above ¥145 to a November high and hovered in the range of when the BOJ intervened last year as the dollar remained strong and the Japanese trade balance disappointed. ¥146.70 is expected resistance, while solid support can be seen at $143.

Aussie trended lower on comments from the outgoing RBA governor and minutes from the last RBA meeting, hitting an October low and making $0.64 all more important going forward.

Top Events in the Week Ahead

Central Bankers to Meet in Wyoming

The main event for the week is likely to be over the course of Friday and Saturday in Jackson Hole, Wyoming, with the gathering of the heads of major central banks under the banner of "Structural Shifts in the Global Economy". It is often an opportunity for the Fed Chair to give some insight into policy shifts that might come at the next meeting in September. Fed Chair Jerome Powell is expected to speak on Friday, with all eyes on his presentation. 

The US will also issue some other key data points during the week, including durable goods orders, with the core rate expected to fall to 0.3% from 0.6% last month, potentially contradicting the soft landing narrative. On Friday, the University of Michigan Consumer sentiment index is expected to come in softer.

Flash PMIs and Market Sentiment

With the economy on tenterhooks over what could happen in China and worried about future rate hikes, preliminary August PMIs could be pivotal for setting the mood from the middle of the week onward. Investors are likely to be looking at the prices paid segment of PMI surveys to see if the downward trend in inflation is being maintained. 

German Manufacturing PMI is seen staging a bit of a recovery but staying well into contraction. The data could impact EUR/USD, bringing $1.08 and $1.10.

Japanese Manufacturing is seen missing returning to expansion by the bare minimum, with GBP/JPY open to fresh 8-year highs unless the 184.00 support is lost.

UK manufacturing is expected to remain in contraction but see a minor recovery, while US manufacturing is expected to close the gap towards expansion. GBP/USD trades in a tight range, with expected breakouts past $1.2765 or $1.2625 expected to instigate further action.

Other events and earnings

Monday sees China loan prime rate. For Tuesday, US existing home sales are on the docket. Wednesday has Canada retail sales. Friday includes UK GfK consumer confidence and final German GDP as well as German Ifo Business Climate data. 

With earnings season over, major earnings expected next week slow down, but reporting names include Zoom, Lowe's, Baidu, Nvidia, Analog Devices, Splunk, Intuit, Royal Bank of Canada and Dollar Tree.