The Global Week Ahead: Powell May Not be Dovish Enough for Markets

Next Week's Risk Dashboard

• Powell to reaffirm September cut pricing…
• …but subsequent market pricing may be too dovish
• Harris riding a DNC peak on light policy substance
• Canadian core CPI to inform reaccelerating trend
• Canada on nationwide rail strike watch
• Global PMIs on tap
• Canadian data focused on retail sales
• US data focused on housing softness
• ECB watchers focused on wage report
• Sweden’s Riksbank to deliver a second rate cut
• Turkey’s central bank to hold
• BoK, BI and BoT expected to hold
• Chinese lending rates expected to be unchanged
• A pair of LatAm GDP updates
• Other potential Jackson Hold speakers and interviews

Chart of the Week

POWELL MAY NOT BE DOVISH ENOUGH FOR MARKETS

This is a truncated version of the Global Week Ahead given that I was on vacation. It will highlight expected developments by region sans any special topics.

US—POWELL’S SPEECH TO BE KEY

The Kansas City Federal Reserve’s annual Jackson Hole Economic Policy Symposium will stand out as the week’s major focal point. This year’s theme is “Reassessing the Effectiveness and Transmission of Monetary Policy.” The agenda, including the full list of presenters, will be released on Thursday evening and then two days of presentations will unfold. We’ll receive a fuller list of attendees over the week. Also watch for customary interviews from various global officials from the sidelines throughout this week.

Powell to Tee Up September but Fall Short of Market Pricing Thereafter

Chair Powell delivers the main event at JH when he speaks on the economic outlook on Friday at 10amET. After another dovish core CPI reading that met expectations and makes it three in a row (chart 1), I fully expect him to reaffirm market pricing for a quarter-point rate cut on September 18^th possibly by invoking reference to how it will ‘soon’ be appropriate to begin easing. I don’t expect him to sound as—let alone more—dovish than what is generously priced by way of 100bps of cuts by year-end which seems like it’s overshooting. He’ll likely defer that part of forward guidance to the Committee’s refreshed September dot plot. He’ll likely signal that the Committee has ticked the box for having ‘greater confidence’ that inflation is under control. I don’t expect him to ring alarm bells on the labour market and instead expect him to reinforce references to ongoing rebalancing away from excess demand for labour while being prepared to act if the job market further deteriorates. He’ll likely repeat references to the need to proceed gradually, balancing the risks of being too restrictive for too long against prematurely easing too rapidly in light of history’s cautions against doing so. Barring unforeseen shocks and severe market dysfunction, the message of the day is likely to hinge on one word: gradual.

I’ve placed eight charts at the back of this publication that show the effects of Jackson Hole on various market metrics after the first full day of proceedings and also after the second day that spills over into Monday following the symposium’s conclusion over the weekend. In general, there are more small rather than big moves outside of key turning points and it may be difficult for Powell to make this year’s symposium as impactful as some of the ones that have really moved markets in the past.

Could a DNC Peak Follow the RNC Peak?

With Trump’s election chances slipping away (charts 2, 3), the focus shifts to the Democratic National Convention (DNC) that commences tonight through to Thursday in Chicago. So what. The Harris and Walz ticket is already set. The list of speakers reads like a list of relics from the party’s past including both Clintons and both Obamas. We may get further details on the policy platform after parts of it have been shared in bits and pieces. 

Her plans are not terribly inspiring thus far. Harris plans to build three million more homes which feels like it takes a page from the Trudeau administration’s plan north of the border which itself is laughably unachievable. Her threats against price gouging please the left wing but is just soap box politics and bad economics, yet her openness to capping prices and raising wage floors flunks Econ 101. Exempting taxes on tips is silly, unfair to folks who pay their taxes regardless of the source of income, distorting, but generally small potatoes from a fiscal deficit standpoint. Her plan to raise the Federal minimum wage is costly and keeps the pressure on inflation risk. Expanding child tax credits to US$6k/child is costly with probably very little effect on birth rates. Harris is under little pressure to reveal a broader platform because she’s currently riding on momentum effects. I remain of the opinion that her chameleon ways remain very much oriented toward a highly interventionist, big government policy bias while her stance on trade is biased toward protectionist environmental and labour distortions.

Light US Data Focused on Housing, PMIs

US data risk will be light and follows the release of minutes to the July FOMC meeting on Wednesday. The annual benchmark revisions to nonfarm payrolls may attract fleeting attention on Wednesday. S&P PMIs for August (Thursday) will be part of a global wave of PMI updates. Existing (Thursday) and new (Friday) home sales will be updated and may stabilize against a weakening trend.

CANADA—CPI IN FOCUS, ON STRIKE WATCH

Canada updates CPI for July on Tuesday. I’ve estimated a 0.5% m/m NSA rise and slight downtick to 2.6% y/y. However, after two months of reacceleration (chart 4), the key will be whether a third month of upside pressure in m/m SAAR measures of trimmed mean and weighted median CPI occurs. That is impossible to estimate in advance given the limited data and high sensitivity of the readings to the distribution of price changes. The reading probably matters little to the BoC that appears intent on delivering meaningful easing before potentially reassessing.

It’s unclear whether BoC officials will attend Jackson Hole and in what capacity.

Canada is on strike-watch. Again. The country has been crippled by large scale and widespread strikes in the private and public sectors since the Spring of 2023 and this week could amplify the risks to economic indicators once again. Watch for further developments on the path toward what appears to be likely strikes at CN and CP rail this week unless some last minute arrangement can be struck.

A pair of retail sales estimates arrive on Friday just before Powell speaks which means they’ll capture only a few minutes of market attention if that. Statcan provided earlier guidance that June’s nominal sales were down -0.3% m/m SA, but this estimate is typically subject to high revision risk and was based on only half of the available survey sample. More important will be details for June like volumes, plus advance guidance for July’s tracking.

The BoC is supposed to refresh its Senior Loan Officer Survey including measures of credit tightening on Monday but it seems to be delayed.

EUROPE—ECB’S WAGES TO INFORM ECB POLICY PRICING

Markets are priced for another ECB rate cut on September 12^th and gradual further easing that may be informed by Thursday’s release of negotiated wages for Q2 in light of the ongoing hot trend (chart 5).

The ECB’s measures of 1- and 3-year inflation expectations in July will likely remain averaging around 2½% when we get the figures on Friday (chart 6).

BoE Governor Bailey speaks at Jackson Hole on Friday at 11amET and hence right after Powell.

Eurozone and UK PMIs for August will be refreshed on Thursday as part of the week’s global wave of PMI updates that will inform growth tracking, supply chain developments and price pressures (charts 7, 8).

Sweden’s Riksbank is expected to deliver its second rate cut of the cycle tomorrow after the first cut in May. That will bring the policy rate down to 3.5%.

Turkey’s central bank is expected to extend its policy rate hold at 50% tomorrow.

ASIA-PACIFIC—A TRIO OF CENTRAL BANK DECISIONS

Three central bank decisions will pair up with refreshed PMIs to dominate local market risk beyond spillover effects of global developments such as the Fed’s symposium.

China’s 1- and 5-year Loan Prime Rates are expected to remain unchanged tonight.

Each of the Bank of Thailand (Wednesday), Bank Indonesia (Wednesday) and Bank of Korea (Thursday) are expected to remain on hold. In addition to domestic developments, each central bank may wish to hear what Powell has to say and to observe the market reactions particularly in terms of FX.

PMIs will be updated by Australia (Wednesday), India (Thursday) and Japan (Thursday). Japan also updates its national CPI measure on Thursday that tends to reveal little beyond the already known soft m/m SA Tokyo measure (chart 9) and hence should pose little risk to carry trade pricing.

LATIN AMERICA—GDP UPDATES AND FED-WATCHING

Spillover market effects from the Fed’s retreat and light local data will dominate.

Chilean Q2 GDP landed at –0.6% q/q SA on Monday morning and in line with expectations but with a mild upward revision to 2.1% q/q SA for Q1 (from 1.9%). Peru’s Q2 GDP report (Friday) is expected to further accelerate to over 3% y/y.