Markets are laser-focused this week on what Jerome Powell will decide to do regarding the pace of tapering. Expectations have been oscillating significantly in the weeks heading in the Jackson Hole Symposium. There have been times when the market was assuming that early tapering is a done deal. However, most recently, there have been fears that the delta variant will hold back the US economy and that will delay a tapering announcement. From Fed’s Vice Chair Clarida’s optimism to Fed’s Kaplan’s recent doubts, there is a significant chance of strong volatility in risk assets post Powell’s speech on Friday. Be ready for volatility ahead!
Other key events from the past week
- NZD: RBNZ shakes away COVID fears, Aug 24: The RBNZ is not overly worried about the latest COVID-19 cases in New Zealand. RBNZ’s Hawkesby said the RBNZ wanted to hike rates by 50bps at the last meeting. Does this now open up the potential for strong gains in NZDCHF over the next few weeks?
- EUR: German PMI’s, Aug 23: Germany’s manufacturing PMI’s this week indicated that Germany is showing signs of strain from supply factors. This will slow the recovery and may be a concern for the ECB in their September meeting.
- US: Inflation data, Aug 27: Inflation data is key at the moment and this core reading is the Fed’s preferred measure. If core inflation moves higher, then expect that to raise expectations of the need for the Fed to taper. However, Powell’s speech later will be the main focus of the day! Watch out for volatility ahead!
Key events for the coming week
- USD: US labour, Sep 03: US labour data is extremely important right now. If there is a miss in the expected data, then watch out for USD weakness and gold strength. This is going to be a key meeting for US policy expectations!
- Seasonal trades: Southwest Airlines, Aug 24: Southwest Airlines is entering a period of seasonal strength. Shares have risen 90% of the time between September 3 and December 7 in the last 10 years. Check out the seasonal pattern here.
- OPEC: Production focus, Sep 01: Pressure from Washington was resisted by OPEC in recent weeks to increase oil production. However, how will OPEC respond to the possibility of slowing demand due to the spread of the delta variant in the Asia-Pac region? Will they reduce production again?