Week of August 25

Markets were largely in a holding pattern ahead of the Jackson Hole Symposium, with sticky inflation in the UK and flash PMIs showing growth.

The coming week is relatively quiet on the macro front, with the US PCE price index and German CPI figures in focus.

Week in Review

The focus of the week started around geopolitics but shifted to monetary policy after FOMC minutes came out more hawkish than anticipated. Fed policymakers had taken into consideration some early signs of weakening in the job market before deciding to keep rates unchanged. The minutes left the impression that the Fed was still more worried about tariff-driven inflation risks than a slowing economy.

The UK July CPI rose to 3.8%, as was expected, with the core rate matching. However, the sticky services inflation left the markets with the impression that consumer prices were not falling fast enough to justify a rate cut this year.

The main takeaway from the Flash August PMIs was that European economies were rebounding at a faster rate. The Euro Area composite PMI advanced into expansion at 51.1, above the 50.8 expected. The UK composite PMI was even further in expansion at 53.0 compared to the forecast of 50.8.

Japan's headline inflation was softer than expected at 3.1% compared to 3.3% forecasted. However, the core rate met expectations of 3.1% and was lower than the 3.3% a month earlier. The data came out ahead of BOJ Governor Kazuo Ueda's speech at Jackson Hole on Saturday.

Canadian inflation slowed to 1.7% from 1.9% prior and was below the forecast of 1.8%. However, the BOC's preferred measure, the trimmed mean, stayed at the top end of the target range at 3.0%, as expected.

In geopolitics, US President Donald Trump hosted Ukrainian President Volodymyr Zelensky and European leaders to discuss conditions for reaching a peace deal to end the war in Ukraine. Although parties expressed positivity about the meeting, the focus shifted to a potential meeting between the presidents of Russia and Ukraine in the coming weeks, aiming to make a breakthrough in peace negotiations.

FOMC permanent member (and Biden appointee) Lisa Cook was accused of mortgage fraud by the Trump Administration. An investigation was initiated, which could lead to her being replaced by a second appointment by Trump, after Governor Adriana Kugler resigned earlier in the month.

Biggest Market Movers

• The dollar index rose around 1% as markets lost hope of a rate cut being confirmed at the Jackson Hole Symposium.
• The Kiwi dollar was the weakest performer after the RBNZ cut rates and signalled more easing to come, losing around 2% below the 200-day average.
• The FTSE 100 hit three consecutive record highs in the wake of stronger economic growth figures, including a beat in flash PMIs.

Top Events in the Week Ahead

The coming week is relatively quiet from a macroeconomic perspective, with the UK away for holiday on Monday. The focus is likely at the back end of the week, with the release of the Fed's preferred inflation, the Core PCE price index.

US Key Growth, Inflation Indicators

After the Fed clarifies its monetary policy outlook at the Jackson Hole Symposium, markets will be looking to next Friday to see how the data matches. The US core PCE price index is expected to stay steady at 2.8%, above the Fed's 2.0% target. Ahead of that, on Tuesday, traders might be looking for some added insight into the effect of tariffs with the release of US durable goods, which are expected at -2.5%, an improvement from the -9.4% of a month earlier. Positive data could weigh on gold and push it further away from the 50-day average of $3350. Support lies at $3270, while resistance is seen at $3400.

Eurozone Inflation Staying Under Control

Friday sees the flash August CPI reading for the major European economies of France and Germany. The ECB is expected to keep rates unchanged unless there is a change in the trend of consumer prices. The German August flash CPI is projected to tick up to 2.1% from 2.0% a month ago. Upbeat CPI figures could boost the euro towards 1.1700 if support forms at 1.1600. On the other hand, continued pressure could extend losses to 1.1400.

Other Events and Earnings

Monday has German Ifo business climate figures. The RBA publishes the minutes of its last meeting on Tuesday. German GfK consumer confidence comes out on Wednesday. Thursday includes the second reading of US Q2 GDP growth. Friday sees Japan's consumer confidence. Earnings in the week include Nvidia, CrowdStrike, Alibaba and Li Auto.