Markets Await Jackson Hole Summit
The Pound is rising slightly against the Euro today ahead of a busy week for global markets, as central bankers meet in Jackson Hole, Wyoming, for their annual symposium beginning on Thursday, 24 August. Also on Thursday, the UK’s GDP estimates for the second quarter of the year will be released. The Office for National Statistics (ONS) has predicted slow growth of 0.3%. This figure might be revised lower and it could trim the value of the Pound.
The US Dollar will be in the spotlight this week as US Federal Reserve (Fed) chair Janet Yellen speaks at the Fed’s Jackson Hole banking conference on Thursday. Mario Draghi, the chief of the European Central Bank (ECB), is expected to make cautious statements about the ECB’s current stimulus programme, which could weaken the Euro.
Pound Sterling – UK Markets
The Pound has lost 0.16% to the US Dollar, trading at $1.28. The Sterling to Euro rate has improved by 0.16%, with the exchange rate at €1.09. The weakness against the US Dollar is a result of the Dollar rising after White House chief strategist Steve Bannon was removed from office last Friday. The Pound continues to be dominated by uncertainties regarding the terms for Brexit more than any recent data releases.
Pro-Brexit economist Professor Patrick Minford of Cardiff Business School has said that a “Hard Brexit” could bring a “£135 billion annual boost” to the UK economy. Minford says that removing all trade tariffs and barriers for both the EU and other trade partners, even before any reciprocal deals are in place, would bring in an additional £80 billion a year. His theory is that the EU would be pressured to offer the UK a free trade deal in order to compete with a UK market that would be “flooded with less expensive goods from elsewhere.” These cheap imports are seen as a threat to British manufacturers and farmers by Open Britain who are campaigning to keep the UK within the single market and customs union.
The Rightmove House Price Index month on month for August shows the UK house prices fell by 0.90% on a month-on-month basis after having risen by 0.10% in July. The average prices rose by 3.10% on an annual comparison, however.
Andrew Sentence, a business economist with PwC has pointed out that the UK’s inflation rate is now the highest in the western world. Last week, the Office for National Statistics reported that the UK’s Consumer Price Index (CPI) remained steady at 2.6% in July after a nearly four year high of 2.9% in May. Although inflation didn’t reach the 2.7% level which had been anticipated, the Bank of England has not revised its projection that inflation will reach 3% in October.
US Dollar – US Markets
The US Dollar remains weakened by the political turmoil that has become the hallmark of Trump’s administration. The US Dollar Index (DXY), which measures the value of the US currency against six major currencies, is up by just 0.1%, at 93.53.
The Dollar recovered slightly against the Japanese Yen on Friday’s news that White House chief strategist Steve Bannon was fired. It’s not expected that the Dollar will be able to hold onto recent gains due to the increasing speculation that Trump will be unable to deliver on his economic campaign promises. The National Australian Bank notes that Trump has weakened the US Dollar, although they report they “still look for a USD recovery late this year and in early 2018.” This depends on either Trump making progress on tax reforms or on the market reassessing expectations for Federal Reserve policies.
Low global inflation is expected to be a primary focus at the Jackson Hole summit in Wyoming this week. US inflation dropped to 1.4% in June and the Eurozone’s rate is at 1.3%, although both have target rates around 2%. Federal Reserve chair Janet Yellen and the European Central Bank chief Mario Draghi are expected to discuss this year’s theme “Fostering a Dynamic Global Economy” as it relates to inflation. Global markets will scrutinize their remarks for hints that either feels confident to make significant adjustments to their central bank’s monetary policies.
On Friday, the University of Michigan’s Consumer Sentiment Index, which surveys 500 consumers to rate the relative levels of present and future economic conditions, showed that August’s consumer sentiment reading of 97.6 smashed expectations of a reading of 94. Although consumer confidence in early August was at its highest levels since January, more recent events are expected to alter sentiment. Richard Curtin a chief economist for the University of Michigan’s consumer survey said, that the controversy after the president’s statements on Charlottesville will “reverse the improvement in economic expectation recorded across all political affiliations in early August.”
Euro – European Markets
Sterling to Euro exchange rate has improved very slightly with the Euro down by 0.06% for an exchange rate of £1.09. Euro has dropped by 0.11% against the US Dollar, with the rate at $1.17.
Mario Draghi’s speech in Germany this week will give investors the first hints of what his comments from Jackson Hole might be. He’s expected to avoid discussing his intention to alter the ECB’s bond-buying programme as the ECB enters what is seen as a crucial stage of its efforts to stabilise the economy. Draghi introduced the 2.3 trillion Euro bond programme three years ago at Jackson Hole.
On Friday, Germany’s Producer Price Index(PPI) figures, measuring the average changes in prices of products sold showed that July’s prices rose at the slowest pace so far, this year. The report from Destatis shows that producer prices for industrial products rose by 2.3% year-on-year for July, weakening slightly from June’s increase of 2.4%. Prices of non-durable consumer goods increased year-on-year by 3.7%, and prices of intermediate, or semi-finished goods, grew by 3%.
Other Currencies – Highlights
The Australian Dollar fell 0.19% against the Pound, trading today at 1.62 AUD, and it also slipped slightly against the US Dollar, trading at 1.26 AUD. Australia’s Commodity Futures Trading (CFT) AUD speculative net positions, which indicate market confidence in the Australian currency showed the trend toward betting on the Aussie Dollar continues expanding to the highest levels since 2013. Analysts are concerned that this market expansion poses a risk to the Australian economy if investors decide to pull back. The Reserve Bank of Australia (RBA) would prefer a weaker Australian Dollar which it has said will hamper growth. The RBA’s August policy meeting indicated that the central bank has strong expectations for the economy, having predicted growth of 3% for 2018 and 2019.
The Pound has slightly weakened against the New Zealand Dollar, trading at 1.75 NZD. The New Zealand Dollar’s value rose slightly at the start of the week and it is expected to remain steady since there are no important data releases due in the next few days. It’s still too early for the upcoming 23 September general election to influence the Kiwi, although the outcome of the elections is increasingly less certain. The rise of Labour leader Jacinda Ardern has strengthened her party, according to recent polls which show Labour, the opposition party, is gaining ground against the governing National Party. The Kiwi to US Dollar exchange rate is 0.73 NZD and the Euro to New Zealand Dollar rate is set at €1.60.