Don’t Dig Yourself A ‘Hole’: Full Week Ahead Preview

Ok, so strap in, because this promises to be an interesting week.

August has proven to be the month that risk assets finally took notice of the exceptionally precarious geopolitical backdrop. Risk assets have reacted unfavorably to the combination of rising tensions on the Korean peninsula and the seemingly terminal decline of the Trump administration. As a reminder, Thursday and Friday marked the first time since Brexit that the S&P has fallen 1% and then declined again the next day.

Pyongyang ratcheted up the rhetoric over the weekend, warning that the U.S. is “pouring gasoline on fire” by going ahead with an annual war game in the South this week amid still-simmering tensions with the North.

Meanwhile, Trump is digging himself a hole and is now under siege from all directions with corporate executives beating a hasty retreat after last Tuesday’s improvised press conference and lawmakers on both sides of the aisle asking if the President is mentally fit to serve (that’s not hyperbole).

Steve Bannon’s exit helped calm jitters around the rumored resignation of Gary Cohn, but as noted earlier, now Steve Mnuchin is being called upon to resign. It goes without saying that if there are any indications whatsoever that either Cohn or Mnuchin are ready to throw in the towel, markets are subject to considerable risk (both men have, for now, indicated that they are going to stick around).

Politics and war aside, all eyes will be on Jackson Hole where Draghi’s highly anticipated speech comes on the heels of ECB minutes that flagged the risk of excessive FX appreciation. Here’s Barclays:

Investors will this week be tuning in to the speeches of central bank officials at the 2017 Jackson Hole Economic Symposium over 24-26 August. There have been reports that ECB President Mario Draghi is scheduled to speak, even though the Symposium’s agenda is typically released quite close to the event start. The Phillips Curve relationship might be a key discussion topic, considering that the subject was actively debated by Fed and ECB officials in policy meetings, as revealed by the latest FOMC and ECB minutes.

Of course expectations for Draghi’s speech were recently damped in a Reuters piece that suggested the ECB chief will not in fact use the event as a platform to telegraph anything about the central bank’s next move (widely expected to be the beginning of the end for PSPP). Here’s a bit more from Goldman:

On Friday, President Draghi will deliver the luncheon address at the FRB of Kansas City’s annual economic symposium at Jackson Hole. His address will start at 8pm London time, after the close of European markets. Reports on the wire services earlier this week cited unnamed ECB sources as stating that Mr. Draghi would refrain from discussing the immediate policy outlook for fear of front-running the Governing Council’s discussion scheduled for the Autumn. Rather, Mr. Draghi will focus on the theme of the symposium (‘fostering a dynamic global economy’).

In what could be her last appearance at Jackson Hole as Chair, Yellen will speak on financial stability.

As for what to expect from markets, you can be sure symposium attendees will be keen to avoid upsetting things further considering the rather delicate geopolitical backdrop, but for what it’s worth, here’s a chart from Barclays that documents the reactions we’ve seen in the past:

JacksonHole

The data calendar is relatively light, which is probably a good thing considering the already palpable risk of a Trump twitter bomb or an errant soundbite from Wyoming. We’ll get some PMIs and also Japan CPI (which will almost invariably show a stark contrast with the recent blowout GDP print).

Here’s BofAML’s bullet point summary:

  • In the US, durable goods will be the main release, while we also get new home sales and speeches from the Fed’s Kaplan in addition to the Jackson Hole speeches.
  • In the Eurozone, we have PMIs and the German IFO, as well as consumer confidence and the final GDP print for Germany. Several ECB speakers are also on the agenda.
  • In the UK, we have the second print of Q2 GDP, as well as public finances data. The government will also likely release further Brexit documents. In Japan, focus will be on the inflation release.
  • In Canada, a quiet week ahead, with only retail sales of note. Similarly little on the calendar for Switzerland, or Australia and New Zealand.
  • In the Scandies, we will get Q2 GDP for Norway as well as unemployment for both Norway and Sweden. We will also hear from Riksbank’s af Jochnick, who will be discussing her views on the Swedish economy and current monetary policy, with particular focus on a change of target variable for monetary policy. Given strong Swedish data and recent good inflation prints the speech will likely gain attention.

And here’s Goldman hitting the high points:

  • Wednesday, August 23: Euro area, flash PMIs (August). August flash PMIs for the Euro area, Germany and France will be published on Wednesday morning. Consensus is for a slight moderation in the aggregate composite PMI (55.4pt, from 55.7pt), and unchanged reads in France and Germany (of 55.6 and 54.7 respectively). RETINA’s implicit forecasts match consensus on the area-wide number, but are slightly more negative on France and Germany (55.3 and 54.5 respectively).
  • Friday, August 25: Japan, CPI. GS +0.5%, consensus +0.5%, last +0.4. We estimate the national core CPI accelerated marginally to +0.5% yoy in July (June: +0.4%) on higher energy prices and price upturns in some goods as a result of yen depreciation. The new core CPI (excluding fresh food and energy) is likely to have risen slightly in July to +0.1% (0.0% in June).
  • Friday, August 25: President Draghi Jackson Hole Speech. On Friday, President Draghi will deliver the luncheon address at the FRB of Kansas City’s annual economic symposium at Jackson Hole.
  • Friday, August 25: Chair Yellen Jackson Hole Speech. Federal Reserve Chair Janet Yellen will give a speech on financial stability at the Kansas City Fed’s annual Economic Symposium in Jackson Hole. No audience or media Q&A is expected.

Finally, here’s the calendar from BofAML….

Calendar

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2 thoughts on “Don’t Dig Yourself A ‘Hole’: Full Week Ahead Preview

  1. Anyone who thinks North Korea has gone away..think again. It’s not just that…the Geopolitical brush firs are raging in many places.
    Also…SOS!!…those of you who are soooooooo comfortable thinking Trump is a moron…and was sooooo lame about C’ville. How many CCCP flags did the fascist left display there??? Looks at the videos…many..and tell us who was dressed like Black Shirts..and has weapons…

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