Growth and Jackson Hole in Focus
The week ahead is relatively quiet from an economic standpoint. But like a lazy, meandering river it will gradually intensify into white water rapids. The latter part of the week will evolve into potentially market-moving events. Beginning on Thursday, we have three key events, and any or all of them can sway sentiment. But of course, as is the norm, market sentiment will depend on certain factors. First, it’s all about Gross Domestic Product or GDP for the US (Thursday) and the UK (Friday). In both cases, this is the 2nd release of GDP data. Then we have the annual retreat of the globe’s economic megastars congregating for the Jackson Hole Economic Symposium. The symposium, which is hosted by the Kansas City branch of the Federal Reserve Bank, begins on Thursday and continues into the weekend.
On Thursday, the US Department of Commerce will release its second estimate of GDP growth for the US. The first release, which came out late last month, had shown that the economy grew 2.3% annualized. That was a major improvement over the 0.6% increase in real GDP in Q1. Any significant revisions this week will impact the US Dollar. That is especially because the Federal Reserve is still relying on data to confirm any potential monetary policy change. Expectations are that there could be an upward revision which would, on the face of it, be positive for the Dollar. However, analysts point out that if that occurs as a result of an inventory build-up that may be unsustainable.
The UK Office of National Statistics will release its second estimate of Q2 GDP results on Friday. In the first release, estimated GDP growth for Q2 was 0.7%, slightly better than Q1 results of 0.4%. Like the Fed, the Bank of England is also basing any changes to monetary policy on actual economic data. Growth is among the handful of key components that will be the determinant. Recently, a second member of the BoE’s Monetary Policy Committee hinted at a possibly imminent rate hike. Thus far this year, UK growth has been relatively tepid, a consequence of a struggling Eurozone. A significant revision of Q2 GDP will guide sentiment for the Pound Sterling. An improvement could bring the BoE one step closer to a rate hike while a downward revision could back burner that possibility.
The Jackson Hole Factor
The week culminates with one other potentially market-moving event. The Jackson Hole Symposium includes participants from around the world, generally central bankers, policy experts, economists and academicians. While not a “market moving event,” per se, the symposium often generates solid “clues” to future monetary policy and the overall global outlook. This year’s “official” topic is inflation, but given its recent woes, China is likely to be the real agenda. Any statement with regards to special measures amid China’s slowdown will be closely scrutinized. Likewise, any understanding between the central bankers and global corporate heads on how best to fend off trouble in China before it reaches their respective shores will garner a lot of attention.
Down to Business
Again, it’s really all about growth. If either of the US or UK GDP figures for Q2 are significantly revised, that will spill over into the affected currency. Primarily, that’s because the economy with the stronger growth will take the lead in the race toward an interest rate hike. The Jackson Hole symposium is not, per se, a market-moving event. However, it can provide solid clues as to the thinking of the symposium participants which include the world’s major central bankers.
On the plate
German IFO business climate(Tuesday) – Will affect mostly the sentiment around the Euro and the DAX. If the index jumps above 110 it will be seen as positive for both.
Swiss GDP Release(Thursday) – CHF investors are keen to see if Swiss growth is accelerating. If it is , this could support some bullish bets on the CHF vs its peers.
US GDP Q2 Second Release(Thursday)- If the second release of the Q2 GDP is revised higher and not because transitory factors such has inventories , then the dollar could gain momentum.
UK GDP Q2 Second Release(Friday) – If the UK’s second release of Q2 GDP is revised higher that could support the pound sterling mainly against the Yen and the Euro.
Chart of the week – GBP/USD