Brief overview before the Jackson Hole meeting
The German economy has revealed signs of slowdown, despite the widespread economic pickup in the euro area and the concomitant strengthening of the euro. A number of data released on Friday pointed to a slowdown in exports and imports in the second quarter. Investment optimism also declined, probably due to the strengthening of the euro, overshadowing the favorable outlook for exporters. As a leading indicator, a slowdown in investment in the leading euro-zone economy could undermine both the economic expectations that until recently were close to buoyancy and to harm inflation expectations struggling for their place in the positive macroeconomic background. The assessment of the current economic situation according to the IFO report turned out to be several points worse than the forecasts, but still quite optimistic.
Nevertheless, the European currency remains almost immune to economic statistics, fully focusing on the event in Jackson Hole. Despite the fact that the topic of the speech of the heads of the Central Bank sounds like “Fostering the growth of the global economy," it is likely that officials will dwell in detail on assessing the economic situation of countries, as well as instructions on how the money supply in the economy will be regulated. Investors expect that Draghi will usher in the ECB meeting in September, saying that the economic momentum gained by the Eurozone allows the ECB to retire, but the current state of affairs is clearly not in favor of this version. Inflation targeting is taking place with very modest success despite huge injections, the European currency surpasses its fundamental growth rates, and the gap in the region's leading economies with laggards is very sensitive. Stock indexes on historical peaks suggest that asset buying has become a bottomless source of financing for European companies, a sort of "symbol of stability" for stock investors. It is possible to trace the relationship of incentives with the growth of hiring, the increase in employment, but consumer demand remains weak, as soft credit conditions have hardly affected such a macroeconomic agent as households.
In my opinion, the need for fresh solutions will push Draghi to announce radical changes. Including the reduction of buying bonds, since it is obvious that the ECB is feeding completely different sectors on which stable inflationary pressures depend.
For Janet Yellen it's all a bit easier. Despite some slippage with the December rate hike, which is still in doubt, the head of the Fed needs to once again plant the idea of safe QE cuts in minds of investors. In order for it to pass most painlessly without explosive growth in yield on the debt market and the release of inflation out of control. There is a possibility that she will again mention the pause in inflation and will report that the economy will withstand another increase, then a bullish correction is inevitable. The Fed Chairman's confident tone is the outcome on which the markets are oriented, since the dollar is ripe for correction, you just need to pull the trigger. Therefore, I believe that Yellen speech will be examined with a slight tinge of bullish bias and wagers on dollar rally in this case are make sense a lot.
Arthur Idiatulin, Tickmill analyst
Nevertheless, the European currency remains almost immune to economic statistics, fully focusing on the event in Jackson Hole. Despite the fact that the topic of the speech of the heads of the Central Bank sounds like “Fostering the growth of the global economy," it is likely that officials will dwell in detail on assessing the economic situation of countries, as well as instructions on how the money supply in the economy will be regulated. Investors expect that Draghi will usher in the ECB meeting in September, saying that the economic momentum gained by the Eurozone allows the ECB to retire, but the current state of affairs is clearly not in favor of this version. Inflation targeting is taking place with very modest success despite huge injections, the European currency surpasses its fundamental growth rates, and the gap in the region's leading economies with laggards is very sensitive. Stock indexes on historical peaks suggest that asset buying has become a bottomless source of financing for European companies, a sort of "symbol of stability" for stock investors. It is possible to trace the relationship of incentives with the growth of hiring, the increase in employment, but consumer demand remains weak, as soft credit conditions have hardly affected such a macroeconomic agent as households.
In my opinion, the need for fresh solutions will push Draghi to announce radical changes. Including the reduction of buying bonds, since it is obvious that the ECB is feeding completely different sectors on which stable inflationary pressures depend.
For Janet Yellen it's all a bit easier. Despite some slippage with the December rate hike, which is still in doubt, the head of the Fed needs to once again plant the idea of safe QE cuts in minds of investors. In order for it to pass most painlessly without explosive growth in yield on the debt market and the release of inflation out of control. There is a possibility that she will again mention the pause in inflation and will report that the economy will withstand another increase, then a bullish correction is inevitable. The Fed Chairman's confident tone is the outcome on which the markets are oriented, since the dollar is ripe for correction, you just need to pull the trigger. Therefore, I believe that Yellen speech will be examined with a slight tinge of bullish bias and wagers on dollar rally in this case are make sense a lot.
Arthur Idiatulin, Tickmill analyst
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results
