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Key Events This Week: All Eyes On The Jackson Hole Webcast

Key Events This Week: All Eyes On The Jackson Hole Webcast

Even though the end of summer is fast approaching, markets are likely to heat up…

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This article was originally published by Zero Hedge
Key Events This Week: All Eyes On The Jackson Hole Webcast

Even though the end of summer is fast approaching, markets are likely to heat up from here as we approach the Jackson Hole symposium and Fed Chair Powell’s speech later in the week. On top of that, we’ve got the release of the August flash PMIs to look forward to today, which will give us an initial indication of how the global economy has fared into the month. And, as Deutsche Bank's Henry Allen adds, Covid developments will remain in focus as a number of countries grapple with a renewed wave of the virus, which was a major factor in last week’s selloff across multiple risk assets.

Indeed, those risks from Covid have already had an impact on this week’s highlight at Jackson Hole, with the Kansas City Fed saying last Friday that the symposium would be moving over to a virtual format, rather than the in-person gathering that’d been planned. Of course this is just one event, but it’s indicative of the broader shift in sentiment we’ve seen in the US over recent weeks as the virus has surged once again, with the University of Michigan’s preliminary consumer sentiment index for August having fallen to its lowest level in nearly a decade.

In terms of what to expect at Jackson Hole, the big question is what Powell might say about a potential timeline for when the Fed could begin to taper their asset purchases, so all eyes will be on whether he gives any hints about that. The focus on that for the coming months has been heightened after the July FOMC minutes said that “most participants” thought that “it could be appropriate to start reducing the pace of asset purchases this year”, so long as the economy evolved broadly as expected. However, DB's economists are of the view that Powell’s speech on Friday will largely mirror his remarks at the press conference following the July FOMC meeting, as well as in the minutes, and so are not expecting a strong signal with respect to the Fed’s next gathering in September. Their view is instead that a tapering announcement is likely to come at the following meeting in early November. Separately, they’re also expecting Powell will emphasize the point from the minutes that there isn’t a mechanical link regarding the timing of tapering and any hikes in the federal funds rate, as well as to reiterate the transitory narrative when it comes to inflation.

Staying on the Fed, over the weekend we had a potentially significant piece of news on the central bank’s leadership from Bloomberg, who reported that Treasury Secretary and former Fed Chair Yellen had told senior White House advisors that she was in favor of reappointing Chair Powell for a second term. The people cited in the article said that President Biden was likely to make his decision around Labor Day (September 6), but was yet to make one yet. Powell’s four-year term comes to an end this February, so assuming the decision is anything like the last couple of timelines, we should likely hear an announcement before the end of the year on this, with the Senate required to confirm whoever’s nominated. DB’s global head of economic research, Peter Hooper, put out a note a couple of weeks back making the case for why Powell’s reappointment had a high probability.

With the delta variant continuing to spread, the flash PMIs for August today will help us work out the extent of the impact on the global economy. Overnight we’ve already had the releases from Japan and Australia with Japan’s composite reading falling to 45.9 from 48.8 last month as the Covid restrictions got expanded to more regions. And as we’ve seen in the past, much of that decline came from a drop in the services PMI (at 43.5 vs. 47.4 last month), whereas manufacturing was relatively stable at 52.4 (vs. 53.0 last month). Australia’s composite PMI was also in contractionary territory at 43.3 (vs. 44.2 last month) as amidst a worsening Covid situation there as well. The numbers from the US and Europe will be out later on, though the US composite PMI has already been edging down for a couple of months now, coming in at 59.9 in July, which is still strong but some way beneath the 68.7 reading back in May.

In the political sphere, there are now less than 5 weeks to go until the federal election in Germany, which will come into increasing focus over the month ahead given the implications for EU as well as domestic policy. Moreover, with Chancellor Merkel standing down, there’ll be a change in the country’s leadership regardless of who forms a coalition. Over the weekend there were further indications that the race is tightening up, with an INSA poll showing Merkel’s CDU/CSU bloc tied with the centre-left SPD on 22% each. That’s the first time that the SPD have been in (joint) first place in an opinion poll since back in early 2017 when they got a temporary bounce after selecting Martin Schulz as their chancellor candidate. It’s also a reasonably marked shift from the previous week’s INSA poll when the CDU/CSU led the SPD by 25% to 20%, and fits into the broader pattern of strengthening support for the SPD in recent weeks. However, the Greens slipped back further onto 17%, which echoes other polls putting them in third place around the high-teens recently, and is a big drop back from the spring when they briefly were polling in first place in the high-20s.

Elsewhere on the political scene, it’ll be worth watching out for what’s happening in the US, as the House of Representatives returns from their summer recess today with Democrats seeking to pass their economic agenda into law. As a reminder, that includes a $3.5tn reconciliation bill, along with the bipartisan infrastructure package that the Senate has already passed. However, 9 moderate House Democrats have said they won’t pass the reconciliation bill unless there’s a vote on the infrastructure bill first, whilst those on the progressive wing have said they won’t vote for the infrastructure package without the reconciliation bill. So how this plays out over the coming days and weeks could have big implications as to how much new spending gets passed.

Here is a breakdown of key events this week day by day, courtesy of Deutsche Bank

Monday August 23

  • Data: August flash manufacturing, services and composite PMIs for Australia, Japan, France, Germany, Euro Area, UK and US, Euro Area advance August consumer confidence, US July existing home sales, July Chicago Fed national activity index

Tuesday August 24

  • Data: Germany final Q2 GDP, US August Richmond Fed manufacturing index, July new home sales
  • Earnings: Medtronic, Intuit
  • Politics: G7 leaders to meet virtually to discuss Afghanistan.

Wednesday August 25

  • Data: Germany August Ifo business climate, US preliminary July durable goods orders, core capital goods orders
  • Earnings: Salesforce, Autodesk, Royal Bank of Canada

Thursday August 26

  • Data: Germany September GfK consumer confidence, Euro Area July M3 money supply, US weekly initial jobless claims, Q2 second estimate GDP, August Kansas City Fed manufacturing activity
  • Central Banks: Jackson Hole symposium begins, Bank of Korea monetary policy decision, ECB publish minutes from July meeting, ECB’s Villeroy speaks
  • Earnings: Dollar General, HP

Friday August 27

  • Data: China July industrial profits, France August consumer confidence, Italy August consumer confidence, US preliminary July wholesale inventories, July advance goods trade balance, personal income, personal spending, final August University of Michigan consumer sentiment index
  • Central Banks: Jackson Hole symposium continues, Fed Chair Powell speaks

* * *

Finally, focusing on just the US, Goldman notes that the key event this week is Fed Chair Jerome Powell's speech at the Jackson Hole Economic Symposium. The key economic data releases are the durable goods report on Wednesday, the Q2 GDP report on Thursday, and core PCE inflation on Friday.

Monday, August 23

  • 09:45 AM Markit Flash US manufacturing PMI, August preliminary (consensus 62.5, last 63.4): Markit Flash US services PMI, August preliminary (consensus 59.0, last 59.9)
  • 10:00 AM Existing home sales, July (GS -2.0%, consensus -0.4%, last +1.4%): We estimate that existing home sales declined 2.0% in July after increasing 1.4% in June. Existing home sales are an input into the brokers' commissions component of residential investment in the GDP report.

Tuesday, August 24

  • 10:00 AM Richmond Fed manufacturing index, August (consensus 25, last 27)
  • 10:00 AM New home sales, July (GS +5.0%, consensus +3.6%, last -6.6%): We estimate that new home sales increased by 5.0% in July, reflecting mean-reversion and firm home-building.

Wednesday, August 25

  • 8:30 AM Durable goods orders, July preliminary (GS -0.5%, consensus -0.2%, last +0.9%); Durable goods orders ex-transportation, July preliminary (GS flat, consensus +0.5%, last +0.5%); Core capital goods orders, July preliminary (GS flat, consensus +0.5%, last +0.7%); Core capital goods shipments, July preliminary (GS +0.5%, consensus +0.7%, last +0.6%): We estimate durable goods orders fell 0.5% in the preliminary July report, reflecting somewhat fewer commercial aircraft orders. We estimate unchanged core capital goods orders and +0.5% for core capital goods shipments, a slowdown from the recent growth pace reflecting supply chain disruptions and a possible drag from the Covid resurgence abroad.

Thursday, August 26

  • 08:30 AM Initial jobless claims, week ended August 21 (GS 340k, consensus 350k, last 348k); Continuing jobless claims, week ended August 14 (consensus 2,785k, last 2,820k); We estimate initial jobless claims declined to 340k in the week ended August 21.
  • 08:30 AM GDP, Q2 second (GS +7.1%, consensus +6.7%, last +6.5%): Personal consumption, Q2 second (GS +12.5%, consensus +12.3%, last +11.8%): We estimate a six-tenths upward revision to Q2 GDP growth to +7.1% (qoq ar). Our forecast reflects the upward revisions to retail sales and inventory data since the advance Q2 reading, as well as firmer-than-expected services consumption details in last week’s Census QSS survey.
  • 11:00 AM Kansas City Fed manufacturing index, August (consensus 25, last 30)

Friday, August 27

  • 08:30 AM Advance goods trade balance, July (GS -$89.5bn, consensus -$90.7bn, last -$91.2bn); We estimate that the goods trade deficit decreased by $1.7bn to $89.5bn in July compared to the final June report, reflecting weakening imports.
  • 08:30 AM Wholesale inventories, July preliminary (consensus +1.0%, last +1.1%); Retail inventories, July (consensus N.A., last +0.3%)
  • 08:30 AM Personal income, July (GS -0.4%, consensus +0.1%, last +0.1%); Personal spending, July (GS +0.2%, consensus +0.4%, last +1.0%); PCE price index, July (GS +0.45%, consensus +0.4%, last +0.45%); Core PCE price index, July (GS +0.37%, consensus +0.3%, last +0.48%); PCE price index (yoy), July (GS +4.17%, consensus N.A., last +3.91%); Core PCE price index (yoy), July (GS +3.61%, consensus +3.6%, last +3.39%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.37% month-over-month in July, corresponding to a 3.61% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.45% in July, corresponding to a 4.17% increase from a year earlier. We expect a 0.4% decrease in personal income and a 0.2% increase in personal spending in July.
  • 10:00 AM University of Michigan consumer sentiment, August final (71.2, consensus 71.0, last 70.2); We expect the University of Michigan consumer sentiment index increased by 1.0pt to 71.2 in the final July reading.
  • 10:00 AM Fed Chair Powell (FOMC voter) speaks; Federal Reserve Chair Jerome Powell will deliver a speech titled “The Economic Outlook” at the Kansas City Federal Reserve Bank’s annual Economic Symposium in Jackson Hole, hosted as a virtual event. The topic of the conference this year is titled “Macroeconomic Policy in an Uneven Economy.” Prepared text and media Q&A are expected. The event will be livestreamed.

Source: DB, BofA, Goldman,

Tyler Durden Mon, 08/23/2021 - 08:59

Economics

US indices close week mixed, weighed down by tech stocks

Benchmark US indices closed the trading week mixed on Friday September 24 pulled down by losses in technology and healthcare sectors amid mixed global…

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Benchmark US indices closed the trading week mixed on Friday, September 24, pulled down by losses in technology and healthcare sectors amid mixed global cues.

The S&P 500 was up 0.15% to 4,455.48. The Dow Jones rose 0.10% to 34,798.00. The NASDAQ Composite fell 0.03% to 15,047.70, and the small-cap Russell 2000 was down 0.49% to 2,248.07.

Global markets remained volatile this week amid mixed cues. US stocks wavered after news that Chinese real estate giant Evergrande Group was on the brink of a major default.

Its US$300 billion debt bomb has sent shockwaves across the global markets. On Thursday, it entered a 30-day grace period after missing an interest payment deadline.

The Fed's sooner-than-expected timeline for stimulus tapering also weighed on investors' minds. The central bank said this week that it is considering withdrawing its bond-buying program by November. Consequently, an interest rate hike may be imminent.

Separately, the Biden administration is also planning to increase the corporate tax. It is currently debating a spending bill, which is expected to outline the program.

On Friday, the energy and financial stocks were the top gainers on S&P 500 index. Real estate and healthcare stocks were the bottom movers. Six of the 11 index segments stayed in the green.

Shares of Nike, Inc (NKE) fell 6.17% after it lowered its sales forecast. The company said it is facing challenges to meet the demand for shoes and athlete wear due to delays in production and shipping. Nevertheless, its revenue jumped 16% YoY to US$12.2 billion in Q1, FY22.

Meredith Corporation (MDP) stock rose 25.27 percent after news that the magazine publisher is in advanced talks for its purchase by media and internet holding company IAC/InterActiveCorp.

In the healthcare sector, Moderna Inc. (MRNA) fell 4.65%, Dexcom Inc. (DXCM) shed 2.25%, and Waters Corporation (WAT) fell 1.78%. Resmed Inc. (RMD) and Boston Scientific Corporation (BSX) ticked down 1.37% and 1.06%, respectively.

In technology stocks, Enphase Energy Inc (ENPH) declined 3.04%, NVIDIA Corp (NVDA) fell 1.89%, and Adobe Inc. (ADBE) declined 1.48%. Accenture plc (ACN) shed 1.20%, and Salesforce.com Inc. (CRM) gained 2.47%.

In the energy sector, ConocoPhillips (COP) rose 2.43%, EOG Resources Inc. (EOG) gained 2.45%, and Baker Hughes Co (BKR) gained 1.25%. Hess Corporation (HES) and Pioneer Natural Resources Company (PXD) advanced 1.10 and 3.21%, respectively.

In the crypto market, prices tumbled after the Central Bank of China declared crypto transactions illegal. Bitcoin (BTC) fell 5.49%, Ethereum (ETH) fell 7.74%, and Dogecoin (DOGE) declined 6.82%.

Also read: With chipmakers in the spotlight, here’s a peek at five of them

Also read: Top five communication stocks that rode the Q2 rebound

Six of the 11 segments of the S&P 500 index stayed in the green.

Also read: Why are Salesforce (CRM), Affirm (AFRM) stocks in limelight today?

 Futures & Commodities

Gold futures were up 0.03% to US$1,750.40 per ounce. Silver decreased by 1.21% to US$22.405 per ounce, while copper rose 1.20% to US$4.2817.

Brent oil futures increased by 1.04% to US$78.05 per barrel and WTI crude was up 0.93% to US$73.98.

Also Read: In the Spotlight: Top 50 US startups in 2021

Bond Market

The 30-year Treasury bond yields was up 3.15% to 1.985, while the 10-year bond yields rose 3.02% to 1.453.

US Dollar Futures Index increased by 0.27% to US$93.278.

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Economics

China Is Responsible For More Than A Third Of World GDP Growth – This Is A Problem

China Is Responsible For More Than A Third Of World GDP Growth – This Is A Problem

As Deutsche Bank’s FX strategist George Saravelos writes…

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China Is Responsible For More Than A Third Of World GDP Growth - This Is A Problem

As Deutsche Bank's FX strategist George Saravelos writes in a recent research report he has been "on the pessimistic side of the reflation narrative for some time now."

In the note titled "three charts for pessimists", he admits that there are many more things happening to the global economy than easy fiscal and monetary policy, including a large negative supply-shock, in turn leading to sizeable demand destruction; stronger than expected precautionary saving behavior from consumers pushing down r*; and massive structural economic change on the back of COVID-led digitization across multiple sectors. And now we have to add China to the mix.

His first chart below highlights a simple observation: China has been acting as a massive global growth turbocharge since the start of the century, and is responsible for more than a third of world GDP growth. As Saravelos gloomily notes, "systemic risks of the unfolding property developer crisis aside, if the last few months experience are signaling a regime break in Chinese tolerance for what authorities have termed "low quality" growth, the world should take notice."

Back to the developed world, Saravelos' second chart shows there is still a massive hole in the UK labor market. Total hours worked are a whopping near-10% below trend compared to pre-COVID. Yet the market is now fully pricing a Bank of England rate hike early next year. For sure, wages are rising, but as a recent IFS study showed there are still massive disruptions in the UK labor market. It will take a brave central bank to hike in to such a hole. Even if it does, it is hardly positive for the currency.

Finally, there are two parallel universes. The global goods sector is overheated. Look no further than US consumption, which is half a trillion dollars above trend. But the US services sector is twice as large and half a trillion below trend. The analytical value of aggregate GDP metrics is severely lessened in the presence of such massive sectoral dislocations. In recent months, the goods sector has started decelerating faster than the services sector has quickened. How the consumer rebalances spending in coming months will be very important.

We are only at the very beginning of trying to understand the true post-COVID steady state, it will be a long ride.

Tyler Durden Fri, 09/24/2021 - 20:20
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Economics

Finally The Taper Tantrum, Or What’s Wrong With August?

If you’re fortunate to be able to do this long enough, you’re absolutely assured to get caught with your pants down and almost certainly more than once….

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If you’re fortunate to be able to do this long enough, you’re absolutely assured to get caught with your pants down and almost certainly more than once. In the short run, it’s all a crapshoot anyway. Markets fluctuate and never, ever go in a straight line. And just when you claim to be right on top, they yank the rug right out from under your conceit(s).

I’ve spent the past few weeks, really months pointing out how Federal Reserve policymakers via their compliant media hasn’t been able to provoke anything out of bonds. Not for lack of trying. Zilch. Nada. Forget tantrum, a whole lot of nothing even though taper – we’re always told – would spell the death of the bond “bull.” I’ve been almost gleefully highlighting how this policy farce has been greeted as a complete non-issue across all of those markets.

Until yesterday.

Finally, yields backed up both then and today in a notable selloff. Is this the long-awaited tantrum? Could it be something else?

For the former, start with Fed Governor Christopher Waller. Recall on August 2nd how Mr. Waller had appeared on CNBC and became the first voting FOMC member to encourage not just taper but a very quick one so as to clear enough calendar for a hard 2022 liftoff in rates.

Just two days later, it might appear his “go early, go fast” mantra caught on with at least some parts of the yield curve. From August 5 forward, the long end of the Treasury curve has been backing up from that recent mid-year low. August 4 was the last time before what is now a multi-week somewhat modest possibly reflationary action.

Before crowning Waller’s confidence, that particular date – August 4 – should ring a bell. Wasn’t it just last year, 2020, that longer-term bond yields had likewise bottomed out on this same day?

Yes, yes it was:



Obviously, the past two years began under very different circumstances; 2020 taking over from 2019 already close if not in recession (especially outside the US) and then the COVID errors. This year, 2021, opened in nearly opposite fashion with allegedly the whole world picking itself back up from all that damage and doing so boosted by every “stimulus” means known to man. Not just rebound, a fiery inflation-filled recovery. 

Yet, in the middle of both there’s more the same than different – questions about the initial “V” shaped recovery (which did not pan out) last year and then a pretty conspicuous “growth scare” this year many are plain hoping they can blame on delta COVID for the “unexpected” soft patch.

You probably also remember how that same label “growth scare” was also thrown around quite liberally in 2019, too. Back then, the only part of the yield curve anyone is told to pay attention to had inverted, not just provoking rate cuts out of a befuddled Jay Powell but raising mainstream alarms as to impending recession (which may actually have happened, but we’ll never know for sure given the timing of the coronavirus pandemic).

Wouldn’t you know it, the low point for LT UST’s in 2019 turned out to have been…August 28!



If twice could be random coincidence, yet three times is a pattern, what is four or five? Believe it or not, this same calendar shape can be found inside every one of the last five years – even 2018 when yields were more distorted as they neared their Reflation #3 peak. That year, the same sort of mid-year downward drift reaching its floor by August 20, 2018.

And the year before, during globally synchronized growth’s reported arrival, UST rates were, for the most part, moving lower (curve flattening) as the market kept rejecting the idea that there was some legitimately inflationary recovery taking shape. The low in yields for 2017? September 5 (OK, so not August but more than close enough).



Even 2015 and 2016 were pretty close in matching this seasonality; during the latter, yields bottomed out early July and then went up (a lot) later in the Autumn. The year before, 2015, as Euro$ #3 “matured”, again a mid-year low on August 24 (following CNY’s big theatrics) which had been the same day as the eurodollar shortage striking Wall Street equities (flash crash).

While there were a couple days later on in 2015 when the 10-year yield dropped a few bps lower than August 24, still the same general trend overall.

And that trend seems to have become intriguingly normal, manifested as a regular uptick in yields especially during September and October and then lasting through the end of each year (2018 the obvious exception given the eruption of Euro$ #4’s landmine). Quite simple enough, LT yields go up after August

Given this clear regularity, could any of these annual BOND ROUTs!!!! be considered reflationary?

Getting back to the original question, there’s quite a lot of evidence for something(s) other than Governor Waller’s melodramatic CNBC interview – or even the taper announcement and dots this week – which seems more likely to account for the bond market’s longer end behavior over the past five weeks. And this would also encompass the “big” selloff yesterday and today.

These last two days, then, have not been some unusual, tantrum-y eruption (look above at how far yields jumped in early September 2019 even as recession moved into the global forefront). Quite to the contrary, what’s happened so far over the past two months is entirely consistent with what seems to happen every year. Taper doesn’t. 

This could even mean I’m actually off-the-hook, my britches still fashioned tightly right where they need to be. The Fed’s people will continue trying to provoke a bond tantrum because of their need for the public to believe taper is in charge of interest rates, yet right at this moment there’s only evidence that bonds are just doing what they normally do without regard for dots and QE’s.

This only raises the question, of course, what the hell must be going on during the month of August? Sorry for the cliffhanger, but that I’ll save for another day. Feel free, however, to tweet or comment your theories and hopefully during next week’s podcast Emil Kalinowski and I will be able to discuss them.

 



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