Jackson Hole positive after recent market turmoil

Kingsley Walker Currency BrokerWritten by:
Kingsley Walker
Currency Broker
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The impact of last week’s turmoil is still being felt across the globe as fresh concerns surrounding the Chinese economy were triggered this week as global equities struggled. Coupled with the continued fall in oil prices, the current outlook for investors is uncertain. The hardest hit currencies have been the commodity dollars namely the Aussie dollar, Canadian Dollar and Kiwi, the reasons behind this were addressed in my colleague James Baxter’s report this morning.

Over the weekend we had the conclusion of the Jackson Hole meeting in the US, which saw speeches from central bankers and members of the Fed regarding the current state of the global economy. Considering the events of last week attendees such as Mark Carney and Stanley Fischer were rather optimistic regarding the current state of the economy and any future events. Bank of England head Mark Carney argued that a prospect of a slowdown in China does not warrant a change in strategy. Carney commented, “Recent events do not yet, to my mind, merit changing the MPC’S strategy for returning inflation to target.” The UK’s exposure to China is modest and therefore there are more immediate concerns at home which are more likely to force the BoE to change strategy. Jackson Hole has recently become a prominent event in the investor calendar to try and decipher any clues from Fed members regarding any change in stance. This meeting was no different given the recent turmoil the markets waited in anticipation for Fed member Stanley Fischer’s speech. Fischer argued that, “Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further.” Although, he did not specify when a rate hike would take place and when the Fed will move he did argue, “I think we’re heading in that direction. What’s happening in particular with the labour markets – and we’ll have to see if that continues when we get the data for next week.” Considering the recent events Fischer was more optimistic than investors would have thought, data releases from the US will be monitored closely and the jobs data Friday will be closely watched by the Fed and markets alike. If we see a positive release expect to see the dollar gain support across the board as the pressure will build for a rate hike and the Fed to start acting.

Since last week the pound has been on the back foot against the dollar and the rate has gone from 1.5426 to 1.5291. A relatively small movement however, if you are moving £200,000 for a house purchase you have lost over $3000 on the rates moving against you.

GBP/USD Exchange rate

gbpusd

PMI Data

The week kicked off with a flood of PMI data from both the US and UK, we had Chicago PMI posting a positive result. This was followed by manufacturing data from the UK which came in under forecasts at 51.5. Yesterday was finished off with manufacturing PMI from the US again missing forecasts. However, although both did not meet expectations they still posted figures above the key level of 50.0 which is seen as expansion.

This week’s data

With only two days left of this week we have Trade balance, unemployment claims, and non-manufacturing PMI out from the US tomorrow, with service PMI out of the UK. Thursday will also see a conference from the ECB which has the potential to cause volatility like any central bank speech would. Friday will be a pivotal day for GBP/USD, Fed member Lacker will deliver a speech which is then followed by Non-farm employment change and the unemployment rate. As I mentioned earlier the non-farm data will be watched closely, a significant improvement will cause volatility.

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Kingsley Walker

[email protected]

01442 892071