What will central bank officials say at this year’s Jackson Hole summit?


Global Economic Update

What will central bank officials say at this year’s Jackson Hole summit?

As the global economy enters the 21st month of the coronavirus pandemic, central bankers from all over the world will meet this week in Jackson Hole, Wyoming to discuss monetary policy.

Of particular interest to market participants will be the speech of Fed Chairman Jay Powell and any clues he may provide about when the central bank may begin to scale back its monthly purchases of $120 billion in government bonds. The minutes of the Fed’s July meeting showed that there were disagreements among officials, but most believed that the cuts could begin later this year.

Andrew Brenner, head of international fixed income at NatAlliance Securities, said: “As the Fed is hesitant about when to downsize, Jackson Hole is now becoming more important.”

Other strategists say that cone conversations will not be the only focus. Steven Major of HSBC believes that the discussion of income inequality may also have an impact on bond yields. He wrote in a report last week that economic inequality “is one of the long-term structural drivers that have led to such low interest rates.”

At last year’s meeting, Powell revealed the bank’s new inflation policy at the time. According to this policy, its target was an average inflation rate of 2%, so prices were allowed to rise for a period of time. Kate Duguid

Britain’s economic recovery faltering?

Those seeking to understand whether the UK’s economic recovery is faltering will look to next week’s Comprehensive Purchasing Managers’ Index, which is a key indicator of manufacturing and service sector activity.

The UK has suffered from the dual effects of the spread of the Delta Coronavirus variant and the “plague”, because many workers were forced to self-quarantine after the British detection and tracking system issued an alert.

Analysts now expect IHS Markit’s comprehensive purchasing managers’ index, which measures the level of corporate activity, to decline for the third time in a row. A reading above 50 indicates that most people report activity expansion. Last month, the index fell from 62.2 in June to 59.2, which was lower than the 61.5 expected by the market.

Even so, it is still well above the 23-year average of 53.7. This is one of the more optimistic indicators of the British economy and is greatly affected by sentiment, so its trajectory is usually more important than its level.

Kieran Tompkins of Capital Economics, a consulting firm, expects the index to drop slightly to 57.5 as the relaxation of the Covid alert system is offset by the decline in manufacturing.

Like their overseas counterparts, British companies are facing supply chain disruptions due to the lingering effects of the pandemic. James Smith, a developed markets economist at ING Group, said: “Given the recent outbreak of the new crown pneumonia in China and other major manufacturing regions in Asia, these problems show little signs of abating.” Federica Koko

Will the rapid growth of the Eurozone in the summer continue?

Eurozone companies recorded their fastest expansion in more than two decades last month. This week’s purchasing manager survey will provide investors with the first clues as to whether they repeated the trick in August, despite the spread of the Delta coronavirus variant and signs of slowing growth in the United States and China.

According to economists’ forecasts compiled by Refinitiv, the closely watched manufacturing and service industry activity indicators are expected to drop slightly to 62.4 and 59.7, respectively.

To a certain extent, this strength reflects that the euro zone has rebounded from the pandemic more slowly than other major economies, and there is still room for catching up. George Barkley, Nomura’s chief euro zone economist, said: “We are seeing high growth, but the base is very low.”

Barkley said that the survey also includes the balance of input and output prices, which can show the extent to which supply chain problems continue to hinder manufacturing production and push up inflation.

Last week, the euro fell to a nine-month low of $1.166 against the U.S. dollar, partly because US interest rates may rise as the European Central Bank expects to maintain interest rates at historically low levels in the next few years. Analysts said that as the euro zone catches up with other economies, expectations of relatively strong growth have prevented the common currency from falling sharply, so any signs of weakness or subsiding inflationary pressures could make it fall further. Tommy Stabington



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