Risk Back On, At Least For Now - Jackson Hole In Focus

Market Analysis /
20 Aug 2018

Its a busy week for the Fed as the Jackson Hole Economic Symposium starts on Thursday. It comes in a week where the US dollar has started under pressure as risk has returned to the market, at least for now. However, we could always see the return of the Turkish issue or trade-related tweets from the White House to derail the current trend.



We are in the midst of the summer slowdown in currency markets, but with the amount of headline-grabbing geopolitical issues, things are not so quiet. The expectations of more negative headlines out of Turkey this week mean that we remain firmly in a scenario, meaning that investors are buying the US dollar as a safe haven.

With Turkish markets on Tuesday the focus for the investors will turn to the economic symposium in Jackson Hole. This annual gathering of central bankers is a key date on the calendar and has the potential to cause volatility in the major . The markets will be looking to Fed Chair Jerome Powell’s headlining speech, especially as the markets are now expectant when it comes to rate hikes in 2018.

What we want to see from the Fed this week is an acknowledgment that their policy stance is adding to the risk of sentiment that is driving the US dollar higher. In the past and under previous Fed Chair Janet Yellen the movement in the greenback would be enough to put any further rate increases on hold. A performance that warns of risk in the markets from Powell would be ideal for emerging markets, especially after the issues created by Turkey. In turn, this could see a risk of a decreasing probability of further rate hikes, but a brief respite for emerging market currencies.



The Euro looks like it could be in for a brief respite this week as Turkish markets go on holiday for most of the week. The reduced risk from Ankara means that despite the fears of global contagion still weighing on the European banking sector, the volatility has the chance to come from other sources.

Instead of focusing firmly on Turkey and emerging markets; it will be the domestic data, most notably the August Purchasing Manager Index (PMI) and consumer confidence numbers to watch. For the Euro to gain, investors will want to see signs of progress in these areas, which has not been obvious over the previous months.

In recent weeks, the markets have been moving in response to issues removed from traditional currency drivers. With this in mind and despite the Turkish holiday there is likely to be a degree of nervousness that could limit the size of market-moving positions.



With markets being driven by political imbalance, sterling remains a little riskier than many investors would like. However, a positive surprise in both retail sales and unemployment showed that it was not all doom and gloom for UK data for now.

The worrying part is that despite the surprise positive data any upside for the Pound was limited, and then totally reversed. The reason for this is twofold. Firstly, the emerging market and Turkish currency crisis has hit any confidence in any currency that is not completely stable. Secondly, the reluctance for any sterling positivity due to Brexit remains the biggest driver in the UK. Domestically this week’s public sector net borrowing figures are the only readings of any note. With an uncertain backdrop, and thin summer trading volumes we could be in store for some big swings in the Sterling, especially if the emerging market story comes back on the agenda.



The 3% inflation print in Canada on Friday was the surprise of the week for global markets and one that saw those holding the Loonie jump for joy. The continued improvement in Canadian data has seen CAD bulls look towards the next policy meeting with the optimism of a further rate hike. Probability currently sits at 32% for a rate hike in September and sits at 72% for a move in October. However, continued strong domestic data, and news of more progress around NAFTA could bring the near-term probability much higher in the coming weeks.

While the domestic data remains positive the lower oil prices could cap any upside for the CAD currency. As always, it is the external factors that pose the biggest risk, and this is likely to be a theme for the week ahead.


The week ahead will give us slightly more insight into the Reserve Bank of Australia’ (RBA) policy debate, with the release of the August meeting minutes on Tuesday. We must also keep an eye on Q2 construction work done on Thursday– which will be a precursor to the more market-moving Q2 Private Capex report due the following week.

With expectations of a rate hike still low, the meeting minutes may give us an idea as to what the RBA needs to start their policy change. Currently, expectations for a rate hike remain low all the way out to Summer 2019.  With current, emerging market jitters there would need to be domestic material changes for expectations to adjust and for the central bank to be more hawkish.



There was not a lot going on in terms of local data releases last week. However, the New Zealand government's controversial measure of banning house sales to foreigners stole domestic headlines. The economic implications of this move may be muted given overseas investors will still be able to purchase apartments and rental homes. Still, one could expect house price inflation to continue to drift lower –further reducing the incentive for the Reserve Bank of New Zealand to press ahead with any pre-emptive changes in monetary policy. Domestically retail sales and trade balance data is likely to be the headline grabbers this week.









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