Markets:
“We will keep at it until the job is done”. Fed chair Powell’s long-awaited speech at the Jackson Hole Symposium by the Kansas City Fed finally arrived. His message is the same as last year when he scared markets in an eight-minute address that the Fed will stick to a restrictive monetary policy. This time around markets were more prepared for the communication though. “Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” “The lower monthly readings for core inflation in June and July were welcome, but two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. We can’t yet know the extent to which these lower readings will continue or where underlying inflation will settle over coming quarters. Twelve-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability.” Overall, Fed Chair’s Powell didn’t really alter his message from previous press conferences. He continues to err on the hawkish side of expectations. US Treasuries spiked lower in a first reaction as Powell kept the possibility of a (September) rate hike firmly alive. Money markets only discount a one in five probability for that to happen. US yield changes currently range between flat (2-yr) and -2.8 bps (30-yr). The move didn’t last though. The dollar couldn’t build on recent gains, currently losing some ticks. EUR/USD changes hands around 1.0830. US stock markets rise between 0.5% and 1%. Interestingly, topics like the possibility of higher neutral rate or raising the inflation target weren’t touched upon during his speech.
News & Views:
The monthly business survey published by the National Bank of Belgium, which started to fall in April, levelled off in August (-14.9 from -14.8 in July). However, stabilization compared to the previous month masks disparate developments at sector level. Business climate improved in trade as respondents expect higher demand and increased their orders with suppliers. Still employment expectations in the sector were more muted. In the building industry (-7.2 from -5.8) confidence is suffering from much gloomier demand expectations and a less favourable assessment of order books. Confidence in manufacturing stabilized (-16.1 from -16.0), influenced by a fall in all underlying components, with the exception of demand expectations, which rose strongly. After two months of sharp decline, general market demand expectations also recovered in the business-related services, due to an improved assessment of current activity. Still, business leaders expressed a much more reserved opinion when it came to expectations of their own activity. All in all, services confidence remained fairly stable (-8.8 from -9.0).
Statistics Sweden today reported several data series including lending data and data on real estate prices. The Real Estate Price index (for one to two-dwelling buildings) in the second quarter declined another 1% compared to the previous quarter and was 12% lower compared to the same quarter last year. Other data series showed that the annual growth rate of lending to households slowed to just 0.9% Y/Y (from 1.1% Y/Y in June). Mortgages accounted for 83% of total lending to households. The amount of mortgages rose 1.3% Y/Y in July. The annual growth rate of loans for consumption eased to 0.6% Y/Y (accounting for 6% of household lending). Lending to non-financial corporates still was 7% Y/Y in July. Labour market data showed an unexpected decline in the unemployment rate (SA) from 7.9% to 7%. The number of people in the labour force and the number of employed people were about 120k higher compared to last year. Both the labour force participation rate (75.7%) and employment rate rose (73.1% up 1.3% Y/Y).At EUR/SEK 11.89 the Swedish krone continues to trade within reach of the all-time low level against the euro (EUR/SEK 11.96) touched earlier this week. The Riksbank raised its policy rate to 3.75% at the end of June meeting and is expected to hike the policy rate at least one more time, starting with a step to 4% at the September 21 meeting. July CPIF inflation was unchanged at 6.4% Y/Y. Core inflation stays high at.8% Y/Y.
