This week might be split into two halves, with reaction to the US-Russia Ukraine peace talks kicking off the opening sessions before markets focus on the Fed’s annual symposium at Jackson Hole in Wyoming. The latter confab has been used historically by Fed speakers to signal upcoming policy changes, although that hasn’t always held true in recent years. We should also get a rate cut from the RBNZ and important inflation data out of Canada, the UK and Japan. Also on the calendar are global PMI business surveys, which can show economic trends months before they appear in official data. These should offer more clues about whether US tariffs are pushing us closer to stagflation.
Presidents Trump and Putin ended their weekend summit in Alaska without securing a Ukraine ceasefire agreement, and seemingly with no concessions from Russia. It appears that the US President has flip-flopped again, also saying that he now wants a rapid peace deal that Kyiv should accept. Investors were hoping for at least a draft for a ceasefire, so we aren’t going to see much geopolitical risk unwinding, with stocks also impacted. Ukrainian President Zelenskiy is travelling to Washington on Monday for talks that leaders of major European nations will now join so headlines will be watched closely. This is likely to cause volatility in energy markets and obviously the euro could be especially sensitive to this new shift by the White House.
As for the Jackson Hole event, Fed officials and Chair Powell will be under an intense spotlight to confirm the current market pricing of a virtually fully priced (85%) 25bps rate cut at their meeting in a few weeks’ time. The Fed is currently battling with the two sides of its mandate, price stability and maximum employment. Most rate setters still worry that tariffs – a one-time boost to prices – will fuel a long-lasting bout of inflation. Meanwhile the labour market could be potentially flirting with recession after the huge recent downward revisions. Powell told us just before that NFP data that he didn’t think the jobs market was getting any weaker. We note there is still one more jobs and inflation report due before the September FOMC. A Powell push back against market rate cut expectations should bolster the dollar and hurt the risk rally, in the short-term at least.