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Breakfast Bites - Fri Aug 25, 2023

Rise and shine everyone and Happy Friday!

A big day for markets with the Jackson Hole Symposium.

While the most watched speech will be that of Fed Chair Powell at 10 am ET, I think it will be important to listen to what ECB President Christine Lagarde has to say at 3 pm ET, given the deteriorating economic data coming out of Europe. Governor Ueda also speaks at a panel to close out the event tomorrow.

All signs point towards a more neutral, “data-dependent” Powell. But the theme of symposium is meant to be longer term in nature - "Structural Shifts in the Global Economy” - and one key issue that’s up for debate is the long-term neutral rate, given the strength in the labor market.

The long-term neutral rate or r* is the equilibrium rate for the economy. Any discussion that suggests that r* may need to be higher may send the market into a tailspin as long-term rates rise because it mean accepting that inflation remains sticky.

While this may not be openly declared, this isn’t a far-fetched notion because it could give the Fed what they need to keep rates “higher for longer”.

A dovish Powell could obviously have the opposite effect and reverse some of this decline that we’ve been seeing.

US Equities are marginally higher this morning after yesterday’s ugly decline. The S&P500 closed -1.35% and the Nasdaq 100 closed at -2.19%, and NVDA gave up almost all its post-earnings gains closing at +0.10%.

The US Dollar Index is higher and above 104, with yields also higher. The Yield Curve is at -0.78%. Crude Oil is higher, Gold is flat and Bitcoin is lower.

Asia and Australia

  • Asia equities ended lower across the region Friday. MSCI Asia Pac ex Japan index down 1.2% to almost entirely reverse the week's gains. Steep losses for Greater China markets, led by Hang Seng again.

  • China's housing ministry, PBOC and NFRA have jointly issued guidance on easing home mortgage rules, which says mortgage rate from commercial banks will depend on the number of homes owned rather than prior mortgage record. The market doesn’t seem to be buying it.

  • China asks financial institutions to increase stock investments. CSRC asked China's pension funds, some large banks and insurers to boost stock investments.

  • Japan Tokyo inflation eases. Tokyo Core CPI rose 2.8% y/y in August, below consensus 2.9% and follows 3.0% in the previous month. Core inflation continues to moderate from its January peak of 4.3%. Still, ex-fresh food & energy held at 4%, remaining that a post-1982 high.

  • Japan’s FY24 general budget requests will exceed JPY110T ($750B) for the third straight year as debt servicing and defense outlays stand to expand by 10% alongside growing welfare costs.

  • RBI's monetary policy committee (MPC) minutes revealed members will monitor factors impacting inflation and take 'necessary action' but added it expects recent spike in food prices to be short lived.

  • Yen overtakes bonds in driving speculation of a BOJ monetary policy adjustment

Europe, Middle East, Africa

  • European equity markets higher. Retail, Basic Resources and Energy lead; Healthcare and Financial Services lag.

  • German Ifo business climate survey reinforces weak macro picture. The reading came in at 85.7 in August versus consensus 86.7 and prior 87.4. It is the fourth consecutive month sentiment has deteriorated and by more than forecast.

  • Final German GDP numbers saw no change from earlier preliminary numbers. Q2 GDP growth came in at 0% QoQ and -0.2% YoY.

  • UK firms continue to hire despite recession risk. Number of new job postings neared 190K at the start of this month, +3.5% than at the end of July.

  • UK consumer confidence saw some improvement. UK GfK consumer confidence jumped five points in August to -25 versus consensus -29 and July's three month low of -30

  • ECB may start focusing on duration of restrictive policy rather than peak rate level.

The Americas

  • Fed's Harker and Collins say rise in long-term borrowing costs helps cool economy, facilitating policy objectives

  • Washington's Middle East allies move closer to China as Saudi Arabia, UAE and Egypt set to join BRICS

  • Disney closes at lowest in nearly nine years as investors turn bearish

  • Retailer woes continue: Gap reports mixed second quarter and decline in sales across all brands; Nordstrom warns of feeble second half as consumers spend cautiously


(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)

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