Hey folks this week was capped off my “Boom Boom Powell’s speech at Jackson Hole WY. Get my take on where we go from here;
WEEKLY SOUND BITES:
US indexes varied for the week as investors seemed to react to mixed signals on the economy and the course of monetary policy. Several retailers reported second-quarter results, which arguably offered a generally cautious picture on the health of the U.S. consumer.
The University of Michigan’s final reading of August’s consumer sentiment, released Friday, fell a bit from July’s nearly two-year high, seemingly due to higher inflation expectations. The continued health of the labor market appeared to be confirmed by the weekly jobless claims report, which came in at 320,000, the lowest level in three weeks. However, S&P Global’s index of manufacturing activity also fell more than expected in August, reversing most of July’s strong gain and moving further back into contraction territory. However, the big event for the week came on Friday when “Boom Boom” Powell, the Fed Chair, gave an indication of how he was interpreting these mixed signals at his speech before the central bank’s annual symposium in Jackson Hole, WY. He noted that higher rates had slowed growth while tightening bank lending standards were also cooling the economy. Yet, on the other hand, he stated that economic growth remained above its longer-term trend and that the housing sector appeared to be “picking back up” after slowing sharply over the past year and a half. He concluded his remarks by stating “we are navigating by the stars under cloudy skies.” Markets interpreted his comments as hawkish but less hawkish than last year and reaffirmed the FEDs commitment to keep rates higher for longer but more than like not to expect a near term rate hike should inflation continue to moderate.
AS for the US Treasury market, after hitting its highest intraday level (4.36%) since late 2007 on Tuesday, the yield on the benchmark 10-year U.S. Treasury note fell back to end relatively unchanged for the week at 4.24%.
Over in Europe the initial results from a survey of purchasing managers compiled by S&P Global indicated that business activity in the eurozone likely shrank for a third consecutive month. The Eurozone Composite PMI Output Index, which combines data from both sectors, fell to a 33-month low of 47.0 from 48.6 in July while the UK PMI Composite Output Index fell to 47.9 from 50.8 in July, the first contraction since January.
Meanwhile, in Japan the flash composite PMI data, combining both manufacturing and services sector activity, rose to 52.6 in August, up from 52.2 in July. The yield on 10-year Japanese government bonds rose sharply during the week, moving as high as 0.68% at one point, the highest level in almost a decade. The value of the yen has tumbled to levels approaching those reached in September/October 2022—lows that prompted the Bank of Japan to step in to support the flagging currency.
Chinese stocks fell as investors grew more pessimistic about the country’s economic outlook. Disappointing data, signs of deflation, record youth unemployment, and continued liquidity problems in the debt-laden property sector have contributed to an erosion of confidence in China’s economy. Overseas funds sold the equivalent of USD 10.7 billion from the mainland market over the 13 trading days through Wednesday, according to Bloomberg, the longest stretch since it began tracking the data in 2016.
Enjoy this week’s Round-Up;
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