Market movers today
Today is the day we’ve waiting for all week with both ECB President Mario Draghi and Fed President Janet Yellen speaking at the Jackson Hole Symposium. Yellen will speak at 16: 00 CET on the subject of financial stability. It will be interesting to hear her thought s on the how monetary policy plays a role in this. While full employment and inflation at 2% are the Fed’s main objectives, financial stability can play a role too. If she gives any policy signals, we expect her to mirror Fed vice President Bill Dudley’s comments last week that another rate hike is warranted this year if the economy holds up. If so, it could be interpreted a bit on the hawkish side given the market is pricing in only a third of a likelihood of a hike by end-year.
Tonight focus will turn to Mario Draghi, due to speak at 21:00 CET. We expect him to lean on the dovish side as the euro strength has challenged the ECB in getting inflation higher and is causing some concern within the ECB, according to the minutes from the previous meeting. He may refrain from giving any signals on tapering as signalled by a recent Reuters’ story that quoted two ECB sources saying he would not be giving any new policy signals but await the tapering discussion in the ECB Council in the autumn. See also Euro Area: Draghi returns to Jackson Hole with a dovish message 18 August 2017.
On the data front , we have the German ifo index and US durable goods orders today. These will be in the background though, as attention today will be on Jackson Hole.
In Sweden, PPI and household lending data are due to be published. See Scandi Markets on page 2 for more details.
Selected market news
Concerns about the US debt ceiling negotiations increased further yesterday after President Trump last night , in a series of tweets, blamed top Republican leaders for ignoring his advice on raising the debt ceiling and creating a ‘mess’. Earlier this week, Trump threatened to veto any deal and thereby force a government shutdown if Congress did not pay for his proposed border wall to Mexico. Yields on US treasury bills maturing on 12 October spiked 5bp yesterday – the largest intraday move since March – on rising concerns that the government might miss the payment . Congress needs to agree on a spending plan no later than 30 September to avoid a government shutdown and the Congressional Budget Office (CBO) estimates that the Treasury will run out of money sometime in October.
Japanese consumer prices inched slightly higher to 0.5% y/y in July from 0.4% in June. The weak inflation development in Japan, despite solid GDP growth and the fact that the output gap is closed, underscores that the Bank of Japan (BoJ) is still struggling to push up inflation. Given the BoJ’s inflation overshooting commitment, where it has promised to continue ease monetary policy until inflation and inflation expectations are above 2% in a stable manner, we expect the BoJ to maintain its current accommodative monetary policy at least throughout our 12-month forecast horizon, support ing the case for a higher EUR/JPY, driven by widening real interest rate spread and continued port folio out flows out of Japan. We target EUR/JPY at 142 in 12 months.
