Focus at Jackson Hole will be on clues to Fed taper

Central bankers from around the world will convene this week in Jackson Hole, Wyoming, to discuss monetary policy as the global economy enters the 21st month of the coronavirus pandemic.

Of particular interest to market participants will be Jay Powell’s speech and any clues the Federal Reserve chair may offer about when the central bank might begin tapering its monthly purchases of $120bn of government debt. Minutes from the Fed’s July meeting showed disagreement among officials, though a majority believe the taper could begin later this year.

“Jackson Hole becomes more important now with indecision from the Fed as to when they will taper,” said Andrew Brenner, head of international fixed income at NatAlliance Securities.

Other strategists say taper talk will not be the only focus. Steven Major of HSBC argues that a discussion of income inequality could also potentially have an effect on bond yields. Economic inequality “is one of the longer-run structural drivers that has contributed to rates being so low”, he wrote in a note last week.

At last year’s meeting Powell revealed the bank’s then new policy under which it would aim to average 2 per cent inflation, therefore allowing prices to rise for a period of time.

Kate Duguid

Is the UK’s economic recovery stumbling?

Those seeking to find out whether the UK’s economic recovery is faltering will have their eyes on next week’s composite purchasing managers’ index, a key gauge of manufacturing and services activity.

Britain has suffered from the twin impact of the spread of the Delta coronavirus variant and the “pingdemic”, as workers were made to self-isolate after being alerted by the UK’s test and trace system.

Analysts are now expecting a third consecutive decline in IHS Markit’s composite purchasing managers’ index, which measures business activity levels. A reading over 50 indicates a majority reported an expansion in activity. Last month it fell to 59.2 from 62.2 in June, and below consensus expectations of 61.5.

Even so, it remains well above its 23-year average of 53.7. This is one of the UK’s economy’s more upbeat indicators, and it is heavily influenced by sentiment, so its trajectory is often more important than its level.

Kieran Tompkins of Capital Economics, the consultancy, expects a minor fall to 57.5 as the easing of the Covid alerting system is offset by a decline in manufacturing.

Like overseas counterparts, UK companies are facing disruption to their supply chains because of the lingering effects of the pandemic. “These issues are showing little sign of abating given the recent flare-up of Covid in China and other key manufacturing regions of Asia,” said James Smith, developed markets economist at ING bank.

Federica Cocco

Is the eurozone summer growth spurt continuing?

Eurozone businesses recorded their fastest expansion in more than two decades last month.

Purchasing managers’ surveys this week will offer investors the first clue as to whether they repeated the trick in August, despite the spread of the Delta coronavirus variant and signs of slowing growth coming from the US and China.

The closely watched gauges of manufacturing and services activity are expected to dip very slightly to 62.4 and 59.7 respectively, according to economists’ forecasts compiled by Refinitiv.

Some of that strength reflects the fact that the euro area has rebounded more slowly from the pandemic than other major economies, and still has room to catch up. “We’ve seen high growth, but from an exceptionally low base,” said George Buckley, chief euro area economist at Nomura.

The surveys also include a balance of input and output prices which could show to what extent supply chain issues continue to hold back production in the manufacturing sector, and drive up inflation, according to Buckley.

The euro fell to a nine-month low of $1.166 against the dollar last week, in part on the prospect of higher US interest rates at a time when the European Central Bank is expected to hold rates at record lows for years to come.

Analysts say the expectation of relatively robust growth as the eurozone plays catch-up with other economies has prevented a sharper fall for the common currency, so any signs of weakness or fading of inflationary pressures could result in a further decline.

Tommy Stubbington

‘[Supply chain] issues are showing little sign of abating given the flare-up of Covid in China and other key regions of Asia’