2023-08-18 06:40:33
It’s summer camp season and, not to be outdone, US interest rate setters and their foreign friends are gathering in Jackson Hole, Wyoming, to talk central banking.
The BRICS group is also meeting amid growing concern in some major emerging markets, while data on global economic activity and China’s property troubles mean August is far from boring. .
Here’s a look at the week ahead in the markets, with Ira Iosebashvili in New York, Li Gu in Shanghai, Yoruk Bahceli in Amsterdam, Jorgelina do Rosario and Marc Jones in London and Rachel Savage in Johannesburg.
1/ SUMMER CAMP!
US Federal Reserve officials (along with their friends from the ECB, BoE and BOJ) are heading to Jackson Hole, Wyoming, August 24-26, for their annual central banking conference.
A year ago, uncertainty reigned over what level of interest rates the Fed would raise and whether aggressive tightening might tame inflation without triggering a recession.
Today, investors are more optimistic as they increasingly expect a “Goldilocks” scenario characterized by sustained growth and easing price pressures.
This does not mean that central banks are off the hook. Inflation remains very high in some places and investors want to know how long it will take for central banks to transition to easing. Bond yields are rising once more, threatening equities.
On Wednesday, the spotlight will be on results from chipmaker Nvidia, whose stock has risen nearly 200% this year, thanks in part to enthusiasm for artificial intelligence.
2/ CHINA: HANDLE WITH CARE
New tensions in the Chinese real estate market are exacerbating the feeling of crisis that is taking hold in the world’s second largest economy.
The onus is on the authorities to do more following an emergency interest rate cut failed to support sentiment. Indeed, the move bolstered expectations of a cut in the prime lending rate — meaning lower mortgage rates — on Monday.
However, the measures investors are calling for include an easing of restrictions on buying homes in cities such as Beijing and Shanghai.
Real estate accounts for around a quarter of the economy and the news that new house prices fell for the first time of the year in July is worrying.
Country Garden, once China’s largest developer by revenue, is on the verge of default; a major Chinese trust company failed to make payments on financial products following misguided real estate bets; and struggling developer China Evergrande filed for bankruptcy protection in the United States. It seems that the peak of Chinese pessimism has not yet been reached.
3/ HOLD ON
The flash PMI indicator of business activity for August, released Wednesday in a large number of economies, might put a damper on optimism regarding the resilience of global growth and help traders to get an idea how long interest rates will remain high.
In July, a slowdown in the services sector pushed US business activity to its lowest level in five months; overall activity in the euro zone contracted for the second consecutive month.
At the beginning of 2023, the services sector had supported economic growth in developed economies, even as manufacturing industry collapsed.
Input and output prices will also come under scrutiny, as rising oil prices and strong labor markets suggest inflation is not yet contained.
European PMIs might provide a bigger signal on whether the European Central Bank will hike rates once more in September and whether the Bank of England opts for a big rate hike.
4/ THE CONSTRUCTION OF THE BRICS
The leaders of the “BRICS” (Brazil, Russia, India, China and South Africa) meet from Tuesday to Thursday in Johannesburg to try to make this loosely structured bloc a global counterweight to the West.
Expansion should be high on the agenda: some 40 countries have expressed interest in joining, either formally or informally, according to host country South Africa. Among these countries are Saudi Arabia, Argentina and Egypt.
But not everyone is enthusiastic, especially Brazil, which fears its influence will be diluted. As for Vladimir Putin, who will participate via video conference due to his international arrest warrant, he has headaches at home as the ruble’s collapse fuels speculation that tough new capital controls will be put in place.
5/ TOWARDS THE BIG?
Turkey’s central bank is expected to raise rates on Thursday for the third consecutive time since the appointment of Hafize Gaye Erkan as governor in early June.
The question is how big that rise will be as Turkey battles double-digit inflation. A reversal of policy at the last two meetings resulted in rate hikes that fell short of investors’ expectations.
While the policy rate stands at 17.5%, the consumer price index last year reached its highest level in 25 years, at more than 85%, and is expected to rise further to peak at more than 60% in 2024.
In July, Erkan pledged to continue “gradual and steady rate hikes” following years of pressure from President Tayyip Erdogan for a rate cut.
Emerging market investors are unlikely to worry regarding a big rise. Russia has just raised its rates by 3.5 percentage points and Argentina by 21 percentage points.
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