US, Spotlight on Powell in Jackson Hole
Today, all eyes are on Fed Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium. His words have often shaken markets in the past, and expectations are high this year as well. However, with attention focused not so much on the September cuts, now taken for granted, but rather on the size and future path of monetary policy, Powell risks disappointing expectations.
A speech that is too data-dependent could leave a bitter taste in the mouth of investors who are hoping for a clearer vision of the future. Meanwhile, markets could suffer further shocks with Nvidia’s next quarterly resultswhose stellar performance (+150% since the beginning of the year) contributed approximately 475 basis points to the 17.76% increase in the S&P 500 (Apple, the second largest contributor, stopped at +119 bp).
US Context: Resilient but Slowing Labor Market
In the US, PMIs showed mixed signals: while manufacturing weakened further below the 50 mark, service activity remained robust at 55.2. However, Thursday’s jobs data painted a picture of the employment situation that, while it has lost some of its luster, remains solid. Initial jobless claims rose slightly to 232,000, but remain among the lowest levels in six weeks.
Continuing claims are also up, but still below their July peak. These data suggest that while the labor market is slowing, there are no signs of a significant deterioration.
Companies are taking precautionary measures, but there has yet to be a wave of mass layoffs. Rising continuing claims signal that finding new work has become more difficult, but robust labor force and wage growth suggest that labor demand has not yet waned. Recent labor market data, while not signaling an imminent recession, does raise awareness of the upcoming August employment report.
Meanwhile, U.S. bond yields, which rose on Thursday, put pressure on stock markets. Comments from Kansas City Fed President Schmid, who called for more economic data before backing a rate cut, fueled the rise in yields. However, their rise was partially contained by more dovish comments from Boston Fed President Collin, who signaled the start of a rate-cutting cycle ahead, while stressing that the path would be “gradual and methodical.”
Philadelphia Fed President Harker also expressed support for a possible rate cut in September, if data warrants it.
Finance and real estate kissed by rate cuts. US banks suffer compared to European ones
Caution prevails on financial markets. While the main European stock exchanges close the day in positive territory, Wall Street, after a brief initial rise, plunges into negative territory, closing not far from the session lows. Despite these contrasting dynamics, investors’ focus seems to converge on the financial and real estate sectors.
The Real Estate sector finds support in the now certain rate cuts and in its recent underperformance, which attracts purchases. As for the banking sector, although possible rate cuts could reduce interest margins, expansionary monetary policy offers support to avoid a recession and keep credit granting stable. Also noteworthy is the marked underperformance of American banks compared to European ones over the last six monthswith the XLF (US financial sector) index underperforming the EXV1 (European banking) by around 9 percentage points.
But let’s proceed in order. Yesterday, markets were tested by macroeconomic data, which provided crucial insights into the health of the economy. In the euro area, August Flash PMIs showed mixed signals: the composite index rose to 51.2, beating expectations of 50.1, and the July reading of 50.2. This growth was fueled by the services sector, while manufacturing recorded a slight decline to 45.6, remaining in recessionary territory. Therefore, the overall picture remains unchanged, with a struggling manufacturing sector and an expanding services sector.
However, it is interesting to note that the entire increase in PMIs is mainly due to Francewhere the services index rose by five points, contributing significantly to the performance of the Eurozone, given the weight that country represents on the overall value. Without this French boost, partly also linked to the effects of Olympic Gamesthe European economy would have shown less dynamism, especially considering the persistent weakness in Germany, where economic activity contracted for the second consecutive month.
Unexpected help for the ECB: wages falling, especially in Germany
On the European front, while waiting for the most important salary data for the ECBthe compensation per employee, which will be published on September 6, the ECB receives an unexpected help from the data on wages. In the second quarter, there was a significant decline in negotiated wages in the euro area, which in the first quarter had increased by 3.55%, compared to 4.72% in the previous quarter. This decline, particularly pronounced in Germany, provides temporary relief to the ECB and raises the possibility of a rate cut already in September.
*Italian Market Analyst at eToro
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