Economic Analysis

Volatility is back last week as traders prepare for this weekend's Jackson Hole seminar. The primary focus will be US Federal Reserve Chairman Jerome Powell's speech on Friday at 10:00 AM ET. The topic is simply centered around, 'Economic Prospects'. Traders will look for Powell to indicate their intentions to taper off or provide clues as to when this signal will appear. In addition, the delta variant of the coronavirus is getting stronger as more lockdowns are implemented in the Asian region. The alternative is slowly making its way across the United States, too. China seems to be getting more aggressive with regulations just as economic data seems to be showing a slowdown. Traders have become wary of investing in China due to possible government intervention.

Jackson Hole

Traders have been waiting since the FOMC meeting in June for the Jackson Hole seminar! They hope that this will be the event when the Fed chair will signal the Fed's intent to begin to reduce unusual monetary conditions by reducing the amount of bonds they buy. Currently, the Fed is buying $120 trillion in Treasuries. At the FOMC meeting in July, Powell said the economy had made "progress" toward its goals of gradual decline. However, he previously stated that the committee needed "more substantial progress" in order to taper off. With 943,000 jobs added to the economy in July's non-farm payrolls reading, everyone is anticipating whether these jobs will be enough to meet the Fed's tapering criteria.

After the July meeting, some Fed officials said that the Fed wanted to see “two months of stronger jobs data before cutting back. Others said the Fed should start cutting sooner rather than later. Only on Friday, Fed Kaplan said The Fed: “If delta has a more negative impact on GDP growth, that could lead me to revise my view. The minutes of the July meeting released last week showed that a majority of members favor tapering by the end of the year. So, don't be surprised if Powell waits until the September FOMC meeting to announce tapering. This should give the FOMC a look at another print and see if the instances of variable delta are declining. The main result is whether Powell suggests that tapering will occur by the end of the year. The market is currently pricing in a rate hike for September 2022.

delta variable

The delta type of coronavirus continues to infect Asia. The latest entrant to the lockdown is New Zealand, which has been relatively unharmed at this point. As of Thursday, the number of cases in the country is up to 31. However, Prime Minister Arden did not make any changes, prompting Auckland to close for 3 days after the first case. However, the virus has now spread to Wellington, which has also been on lockdown for 3 days. In Australia, Sydney and Melbourne remain under lockdown, and other large cities have been put into "sudden closures" for several days as well. And in Japan, most of the country is under a state of emergency. Other Asian countries, such as Vietnam and South Korea, are implementing similar measures. As a result of the difference, the AUD and NZDUSD hit new 2021 lows this week at 0.7106 and 0.6851 respectively. In the United States, new cases, hospitalizations, and deaths are increasing again in many states, including large states such as Texas and Florida. If these numbers continue to rise, they may influence the Fed's decision as to when to announce the tapering. Watch closely this week to see if cases continue to rise ahead of the Jackson Hole Symposium.

China

Last week, China published poor data. Industrial production, retail sales and the unemployment rate were all worse than the June reading. With increased regulation in technology, gaming, private education and now real estate, investors are concerned that the government may take control of these sectors. The government has even gone so far as to take a seat on the board of two of China's largest technology companies. With increased regulation and weak economic data, the expected Chinese demand is affected. As a result, iron and copper ore are down 33% and 15%, respectively, since late July. Additionally, stock indices were affected as well, with China's A50 down nearly 29% from its highs this year and Hong Kong's Heng Sang down 21% from its recent highs.

Economic data

The highlight of the week will be the Jackson Hole Symposium, but just an hour and a half before Powell's speech, the US will release the Fed's preferred inflation measure, the core PCE indicator. We will also take a first look at global PMIs for manufacturing and services, US housing data, German sentiment data, and Australian retail sales. Other important economic data are as follows:

Tuesday

New Zealand: Retail Sales (Q2)

Germany: Final GDP growth rate (Q2)

US: New Home Sales (July)

United States: Richmond Fed Manufacturing Index

Wednesday

New Zealand: Trade Balance (July)

Germany: business climate

US: Durable Goods Orders (July)

UK: ECB monetary policy meeting accounts

United States: Estimated GDP Growth Rate II (Q2)

United States: Auction for 7 years

United States: Jackson Hole Symposium

Friday

US: Personal Income (July)

US: Personal Spending (July)

United States: Core Price Index

US: Michigan Consumer Confidence Final

United States: Powell's Jackson Hole speech

United States: Jackson Hole Symposium