A relatively light event calendar can be deceptive, especially in these Summer months, when many market participants and traders are on vacation. However, don’t be fooled as ongoing trade tensions and global growth worries are ever-present and have sparked some volatile moves in markets.
Treasuries had their biggest monthly rally in more than four years last week as bond markets have sounded a recession warning, with ratings agency S&P warning investors it is on ‘high alert’ for the US economy. The yield curve - the market's expectations of future interest rates - inverted for the first time since the summer of 2007 and we wrote about this last week in more depth here.
We have an interesting week ahead of us, as we get more colour on the US macro outlook with the release of manufacturing PMI which is expected to fall below the 50 threshold in line with the global weakness in manufacturing.
Wednesday’s FOMC Minutes may appear rather stale, and hawkish as alot has happened since the Fed’s ‘mid-cycle adjustment’. Chair Powell’s press conference suggested this would not be the start of an easing cycle but less than twenty-four hours later, Trump made his announcement that he would apply a 10% tariff on $300 billion of Chinese imports. Markets are currently pricing in nearly four more cuts in addition to the one already delivered with investors placing odds of 21% on a half-point cut in September.
In Europe, the ECB will publish an account of its July policy meeting on Thursday after changing its rates guidance to suggest that rates could be cut soon. A power struggle is occurring in Italy’s government and the drama will continue with an expected vote of no confidence in Prime Minister Conte.
The main draw of the week will be the Federal Reserve’s annual symposium at Jackson Hole, taking place from August 22-24. Numerous central bankers will be attending, including Powell who is scheduled to speak on Friday, when we may get an update from him on how he sees this ‘mid-cycle’ and whether the Fed moves more swiftly and aggressively owing to the recent increase in trade tensions.
Here's what to look out for on the calendar across global markets this week:
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