MNI US OPEN - Fed Chair Powell's Keynote Speech in Focus

NEWS

MNI JACKSON HOLE PREVIEW: Powell to Emphasize the Job Isn’t Done

Chair Powell’s task in his Jackson Hole keynote speech is to reaffirm the recent turn to a meeting-by-meeting, data-dependent approach to policy while emphasizing that the Fed intends to keep rates in restrictive territory for a lengthy period of time. In this regard it is likely to sound like a bookend to his brief 2022 speech in which he invoked the lessons of the 1970s and 80s to say “we must keep at it until the job is done”, with Powell laying out the “higher for longer” rate landscape for the year ahead. Most analysts expect Powell to deliver a hawkish-on-balance message, and combined with the recent jump in market rates, the bar is set reasonably high for a hawkish reaction.

ECB (RTRS): Momentum Growing for ECB Rate Hike Pause as Growth Falters - Sources

European Central Bank policymakers are increasingly concerned about deteriorating growth prospects and, while the debate is still open, momentum for a pause in its rate hikes is building, eight sources with direct knowledge of the discussion said. The ECB has raised rates at each of its past nine meetings to tame prices, most recently on July 27, when it left its options open for its next meeting in September, with policymakers divided between a pause and tightening further.

ECB (BBG): ECB’s Nagel Says Much Too Early to Consider Rate Hike Pause

European Central Bank Governing Council member Joachim Nagel said that he’s not convinced inflation is under control enough for a halt in interest rate hikes, with his decision hinging on additional data in the coming weeks. “It’s for me much too early to think about a pause,” the Bundesbank chief told Bloomberg TV at Jackson Hole Thursday, adding that he’ll wait for additional figures before making a decision. “We shouldn’t forget inflation is still around 5%. So this is much too high. Our target is 2%. So there’s some way to go.”

ECB (BBG): ECB’s Vujcic Says More Price Data Needed to Determine Rate Peak

European Central Bank Governing Council member Boris Vujcic said officials need more data about the trajectory of inflation to judge whether interest rates have risen far enough. “We are now certainly in the restrictive territory,” the head of Croatia’s central bank told Bloomberg TV in an interview on the sidelines of the Federal Reserve Bank of Kansas City’s annual symposium in Jackson Hole, Wyoming. “Whether we are in a restrictive-enough territory remains to be seen. And this is something that you will only see from the inflation data that will come in the next prints.”

US (BBG): Trump Mug Shot Released After Booking in Georgia Jail

Donald Trump’s mug shot was made public after he surrendered to an Atlanta jail on charges that he conspired to overturn the 2020 election — a polarizing image of the former president as he seeks to return to the White House in 2024, which prompted his return to the platform formerly known as Twitter. The photograph at the Fulton County Jail on Thursday marks the first time Trump has been forced to have his mug shot taken. In three earlier criminal cases against him this year — in New York, Florida and Washington — authorities skipped the procedure because it wasn’t deemed necessary.

US (MNI): Fed Right to Stay Open to More Hikes - Obstfeld

The Federal Reserve likely needs to see more economic weakening before officials are convinced that they can rule out further interest rate hikes – and certainly before they even begin to consider reductions in borrowing costs, former IMF chief economist Maurice Obstfeld told MNI. “If the Fed really wants to go to 2% sustainably they will have to see some loosening in the labor market, some moderation in the growth rate. How deep that would have to be, don’t know,” Obstfeld said in an interview on the sidelines of the Kansas City Fed’s Jackson Hole Symposium.

US/CHINA (MNI): Commerce Sec Raimondo Seeks to Assuage Trade Concerns in Beijing Trip

MNI (London) US Commerce Secretary Gina Raimondo visits Beijing on Sunday 27 August in what could prove an important trip with regards to US-China trade. Relations between the world's two largest economies remain strained amid geopolitical tensions and US export bans on high-tech chip manufacturing equipment.

CHINA (BBG): China Eases Home Purchase Rules in New Push to Boost Economy

China unveiled a further easing of its mortgage policies to halt a slump in its residential property market and revive growth in the world’s second-largest economy. The country is proposing that local governments can scrap a rule that disqualifies people who’ve ever had a mortgage - even if fully repaid - from being considered a first-time homebuyer in major cities, official Xinhua news agency reported on Friday, citing the Ministry of Housing and Urban-Rural Development, the People’s Bank of China and the National Administration of Financial Regulation.

CHINA (BBG): China Regulator to Meet Global Investors to Shore Up Market

China’s securities regulator plans to convene a meeting with some of the world’s biggest asset managers on Friday, its latest attempt to shore up confidence after a record stretch of outflows by foreign funds. Fang Xinghai, a vice chairman of the China Securities Regulatory Commission, will host the meeting scheduled to take place in Hong Kong, people familiar with the matter said, asking not to be identified discussing private information. Fidelity International Ltd. and Goldman Sachs Group Inc. are among those invited, one of the people said.

CHINA (BBG): Country Garden Holders Vote on Extending $535 Million Local Bond

Country Garden Holdings Co. bondholders will finish voting later Friday on the distressed Chinese developer’s plan to extend payment on a yuan note coming due, a key test as the firm tries to avoid its first default. The country’s former largest builder has asked to stretch payment of the 3.9 billion yuan ($535 million) of outstanding principal into 2026. Online voting ends at 10 p.m. Beijing time.

CHINA (RTRS) China Plans to Cut Stamp Duty on Stocks by up to 50% to Revive Confidence

Chinese authorities are planning to cut the stamp duty on stock trading by as much as 50%, three people with knowledge with the matter said, in a further attempt to revitalise the country's struggling stock market. Regulators including the Ministry of Finance, under the guidance of the State Council, submitted a draft proposal to the cabinet earlier this month, said two of the people, adding a decision could be announced as soon as Friday.

CHINA/INDIA (BBG): Xi, Modi Speak at BRICS in Attempt to Resolve Border Dispute

Chinese President Xi Jinping and Indian Prime Minister Narendra Modi spoke on the sidelines of the BRICS summit in Johannesburg, asking officials to work at resolving a border dispute. Xi and Modi have largely avoided direct talks since the border conflict began in May 2020 despite having crossed paths at a number of international gatherings. They last had an unplanned exchange about ties at a dinner for Group of 20 leaders in Bali last November.

BRICS (MNI): BRICS Currency a Nonstarter- EX-IMF Chief Economist

BRICS nations’ efforts to create a viable alternative to the U.S. economy’s global dominance and the dollar’s preeminent status as the world’s reserve currency are likely to fail, former IMF chief economist Maurice Obstfeld told MNI. BRICS countries – Brazil, Russia, India, China and South Africa – are launching an effort to expand the group, and are also debating the idea of creating a common currency for trade. But Obstfeld said in an interview that the agglomeration of countries is spread too far and wide to be workable

COMMODITIES (BBG): Iron Ore Set for Biggest Weekly Gain Since June as Mills Restock

Iron ore was on track for its biggest weekly gain since June, as Chinese mills began to restock to meet an anticipated increase in steel demand when construction activity picks up from next month. The steel-making material jumped as much as 1.7% on Friday. Investors are betting China’s looming two-month building season will show that the economy and property sector are regaining momentum lost during the pandemic.

DATA

GERMAN DATA (BBG): Germany Faces Grim Outlook as Business Confidence Worsens

Business confidence in Germany took another hit in August, despite the economy just exiting a recession in the second quarter. The Ifo institute’s sentiment gauge dropped to 85.7 from a revised 87.4 the previous month, falling short of the median estimate in a Bloomberg survey. A separate report confirmed earlier Friday that gross domestic product stagnated in the three months through June, weighed down by trade.

GERMANY FINAL 2Q GDP UNCHANGED Q/Q; EST. 0% (BBG)

SWEDEN JUL UNEMPLOYMENT 6.2% (MNI)

JAPAN DATA (MNI): Japan Aug Tokyo Core CPI Rises 2.8% vs. July 3.0%

• JAPAN AUG TOKYO CORE CPI +2.8% Y/Y; JULY +3.0%
• JAPAN AUG TOKYO CORE-CORE CPI +4.0% Y/Y; JULY +4.0%
• JAPAN AUG TOKYO CPI FOOD EX-PERISHABLES +8.9% Y/Y; JULY +9.0%
• JAPAN AUG TOKYO CPI ENERGY COSTS -15.9% Y/Y; JULY -11.9%

The y/y rise in the Tokyo core inflation rate slowed to 2.8% in Aug from July's 3.0% due to lower energy prices, indicating that the nationwide August core CPI could fall from July's 3.1%, Ministry of Internal Affairs and Communications data showed Friday. The core-core CPI (excluding fresh food and energy) – a key indicator in the underlying trend of inflation – rose 4.0% y/y in August, unchanged from July's 4.0% and staying at the highest level since April 1982.

JAPAN JULY SERVICES PPI +1.7% Y/Y; JUNE REV +1.4% (MNI)
JAPAN JULY SERVICES PPI +0.5% M/M: JUNE UNREV -0.2% (MNI)

FOREX: EUR/USD Testing Several Key Supports as Momentum Leans Toward Sept Pause

• The EUR faced selling pressure through Asia-Pac hours and across the European open, resulting in a break below the key 200-dma support of 1.0804 (last broken below in Jun'21). EUR/USD is now testing the base of the bull channel drawn off the March lows at 1.0769. A break and close below this mark would be a resolutely bearish development, opening June 12th lows at 1.0733 as well as the March 15 lows of 1.0635 further out.
• Moves follow further caution around the Sept ECB rate decision, with Reuters reporting that momentum for a rate pause is building, according to 8 separate sources. Approximately 8.5bps of tightening remains priced, shedding around 1bps on the story.
• This leaves EUR the poorest performing currency so far Friday, with with the USD modestly firmer. AUD is the strongest on the day, as markets look to recoup a small part of Thursday's sharper losses. The outlook for AUD/USD remains bearish, with focus on the bear trigger and mid-August lows of 0.6365. China stimulus efforts may be containing AUD risks at present, with Reuters citing sources in reporting that the China authorities are looking to cut stamp duty on domestic stock trading by as much as 50%.
• Jackson Hole takes focus going forward, with Fed chair Powell's keynote speech in the spotlight. He speaks at 1505BST/1005ET, with text set to be released. Final University of Michigan sentiment data also crosses, with 1-yr and 5-yr inflation expectations expected unchanged at 3.3% and 2.9% respectively.

EGB/GILT SUMMARY: A Little Softer, No Lasting Relief From ECB Sources Ahead Of Key Jackson Hole Speeches

• A relatively tight start for German FI, with a brief relief rally surrounding the RTRS ECB sources report pointing to “momentum growing for ECB rate hike pause as growth falters” quickly pared.
• The piece generally reflected the data-dependent stance that has already been heavily touted by the Bank itself, coupled with the recent run of data. It noted that the September debate “remains open and nothing would be settled until after the next inflation reading and the ECB's own new economic projections.”
• Further out the piece stressed that “all the sources agreed that even in case of a pause, the ECB would need to make clear its job was not done and that more policy tightening could still be needed.”
• Bund futures -15, while the major German cash benchmarks run 3-4bp cheaper across the curve.
• Core & semi-core EGB spreads are little changed vs. Bunds.• Peripherals sit a touch tighter vs. Bunds at the 10-Year point (excluding Spain), likely aided by the RTRS ECB sources report (at the margin), equity futures firming from session lows and CDS indices tightening a touch.
• Focus is squarely on impending comments from Lagarde, Powell & co. out of Jackson Hole.

GILTS: Softer & Flatter, Looking Elsewhere For Cues Still

• Bulls threatened to close the small opening gap lower in gilt futures, before wider core global FI markets drifted lower again, leaving the contract -25. Early session lows remain intact.
• Cash benchmarks are 2-4bp cheaper as the curve flattens.
• Most swap spreads are a touch tighter on the session.
• SONIA futures sit flat to -4.5 through the blues.

EQUITIES: Thursday's Sell-Off Reinforces Bearish Theme in E-Mini S&P

A bearish theme in Eurostoxx 50 futures remains present and yesterday’s sharp sell-off reinforces this theme. The move lower signals the end of the recent corrective bounce between Aug 18 - 24. Key support and the bear trigger has been defined at 4187.00, the Aug 8 low. A break of this level would confirm a resumption of the downtrend. Resistance to watch is 4335.00, the 50-day EMA. A sharp sell-off yesterday in the E-mini S&P contract reinforces a bearish theme and signals the end of the recent corrective bounce between Aug 18 - 24. The focus turns to support at 4350.00, the Aug 18 low and bear trigger. A break would confirm a resumption of the current bear cycle. On the upside, resistance to watch is 4499.37, the base of a bull channel that was breached last week. The channel is drawn from the Mar 13 low.

• Japan's NIKKEI closed lower by 662.93 pts or -2.05% at 31624.28 and the TOPIX ended 20.19 pts lower or -0.88% at 2266.4.
• Elsewhere, in China the SHANGHAI closed lower by 18.169 pts or -0.59% at 3064.075 and the HANG SENG ended 255.79 pts lower or -1.4% at 17956.38.
• Across Europe, Germany's DAX trades higher by 38.16 pts or +0.24% at 15658.84, FTSE 100 higher by 23.76 pts or +0.32% at 7357.29, CAC 40 up 37.88 pts or +0.53% at 7252.24 and Euro Stoxx 50 up 18.53 pts or +0.44% at 4250.71.
• Dow Jones mini up 69 pts or +0.2% at 34211, S&P 500 mini up 9 pts or +0.21% at 4395.5, NASDAQ mini up 15.5 pts or +0.1% at 14877.75.

COMMODITIES: Gold Still Bearish Despite This Week's Corrective Recovery

The uptrend in WTI futures remains intact, however, a corrective cycle is in play for now. Wednesday’s move lower resulted in a print below support at $78.33, the Aug 3 low. A clear break of this support would highlight a stronger bear cycle and pave the way for a deeper retracement. Note that a key support lies at the 50-day EMA, which intersects at $77.48. Initial resistance to watch is $81.75, a break would be a bullish development. The outlook in Gold remains bearish, however, a short-term correction has resulted in a recovery this week. The yellow metal has breached resistance at the 20-day EMA and attention turns to the 50-day EMA, at $1931.4. A clear break of this average would strengthen the current bull cycle. For bears, moving average studies continue to highlight a dominant downtrend. Key support and the bear trigger has been defined at $1884.9, the Aug 21 low.

• WTI Crude up $0.93 or +1.18% at $79.97
• Natural Gas up $0.01 or +0.52% at $2.532
• Gold spot down $1.61 or -0.08% at $1915.22
• Copper up $2.3 or +0.61% at $381.65
• Silver up $0.01 or +0.02% at $24.129
• Platinum up $2.87 or +0.31% at $940.98