A tepid performance on Friday saw the S&P 500 lock in a third consecutive week of declines on the back of higher yields, resilient economic data, and renewed concerns over the Chinese economy. For the week, the Nasdaq shed 2.33%, the Dow Jones finished 2.21% lower, and the S&P 500 lost 2.11%.
Over the weekend, Chinese authorities met to discuss concerns over the economy. Reports suggest major bank lenders were instructed to intensify credit expansion, explore new growth points for credit loans, and adjust and optimise real estate credit policies. Whether there is enough substance in the headlines to mask the disappointment of today’s modest 10 bp rate cut to the 1-year Loan Prime Rate remains to be seen.
This week the key events in the US will be ISM manufacturing, an earnings report from AI poster child Nvidia, and the annual central banker Jackson Hole Economic Symposium.
Expectation for Jackson Hole
Jackson Hole event: 24th to 26th August, 2023
This year, the Jackson Hole Economic Symposium title is “Structural Shifts in the Global Economy.” The title opens up discussion on several topics, including deglobalisation, the green transition, the neutral rate, artificial intelligence, larger fiscal deficits, and remote work.
Fed Chair Powell and ECB President Lagarde are both expected to speak. While no new signal on monetary policy is likely, given that both central banks are data-dependent, there is a risk that the run of robust US economic data may see a more hawkish tone emerge, particularly from Fed Chair Powell’s speech.
Key points from Fed Chair Powell may include
- Reinforcing the Fed’s commitment to the 2% inflation target within a reasonable time
- Acknowledging the progress made in reducing inflation, but also noting that core inflation remains sticky and well above the target, and that the Fed will see the job through
- Reiterating that interest rates will remain high for as long as it takes to see inflation return towards the inflation target
Key Points from ECB President Lagarde may include
- Reiterating comments from her speech at the Council on Foreign Relations that a more fragmented economy may lead to instability and supply issues
- Reiterating comments from her speech at Sintra that higher rates are needed to stifle persistent inflation.
