** EVENTS PREVIEW **
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There is no doubting that Yellen's over-anticipated KC Fed Jackson Hole Symposium speech will be the focal point for the day, though there is also a reasonable volume of statistics on offer, even if some are second readings. Once the weaker than expected Japan CPI and slightly better than forecast German / French Consumer Confidence Surveys have been digested, attention moves to the detailed breakdown of UK Q2 GDP, the June Index of Services and preliminary Q2 Business Investment, while the afternoon has revised US Q2 GDP, the Advance Goods Trade Balance and the final reading on Michigan Sentiment. Other considerations such as low volatility, the hither and thither on the oil output/demand impact on prices, China's debt and debt market woes and Russia/Ukraine and other geopolitical tensions will not be on the agenda, though they remain extant overarching themes.
** U.K. - Q2 GDP / Business Investment / Index of Services **
- Historical is a term that is often bandied about in data previews, but today's run of UK data definitely belong in that camp, even if the details on the Index of Services and Q2 Business Investment will certainly provide some interesting points of detail, in other word benchmarks for comparing post-Brexit economic performance. Q2 GDP is unsurprisingly seen unrevised, the forecast for the Q2 Index of Services looks to be predicated on the assumption that the provisional estimate was correct. As far as Trade contributions to GDP go, these are expected to broadly neutral Exports +0.7% q/q, Imports +0.8% q/q; however as the Q4 revisions more than amply demonstrated (Exports rev. from prov. 0.1% q/q to 3.2%, Imports 2.5% q/q from prov. 0.9%), a very close eye needs to be kept on revisions, which were provisionally reported as Exports -0.4% q/q, Imports 0.1% q/q. Much the same can probably be observed by the first reading on Business Investment in terms of revisions, though the underlying trend has been weak for a protracted period, with the occasional improvements which have been observed, proving to be little more than a flash in the pan.
** U.S.A. - Yellen at Jackson Hole / Q2 GDP first revision ****
- Prior to Ms Yellen, the primary focus in terms of the Q2 GDP revisions will be the details, above all Inventories, CapEx and Housing Investment, which will be the potential wild cards, given that forecasts for the headline GDP (1.1% vs. preliminary 1.2%) and Private Consumption (unrevised at 4.2%), Final Domestic Sales (also unrevised at 2.4%) imply a statistical case of 'move along, nothing to see here'. The Advance Goods Trade Balance for the first month of Q3 is expected to narrow modestly to $-63.0 Bln from a 16-month wide of $-64.5 Bln in June, which is predicated on typical seasonal patterns prevailing, rather than indicating any material change in recent export and import trends. But barring some substantive surprises, these reports look to be little more than roadkill ahead of Yellen's speech.
Relative to Mr Bernanke, Ms Yellen has hardly been enthusiastic in using the Jackson Hole Symposium to signal long-term policy parameter changes, or indeed even in participating, which should be borne in mind; while she and BoJ's Kuroda are attending, Messrs Carney and Draghi are not, though they are deputized by Shafik and Coeure. In years gone by, it was the case that what emerged in the aftermath of the symposium about off the record discussions between officials and major banks that participated that attracted most interest, but the latter group are now much less well represented. Eminently with some central bankers openly questioning the efficacy of G7/European central banks' policy measures in the post-GFC environment, and fretting about the risks of maintaining and not reversing them for a protracted period, it will not just be Ms Yellen's contribution on "The Federal Reserve's Monetary Policy Toolkit" that will need to be digested. While markets may take a very short-term view on what she says, the speech will likely focus on the long-term, and perhaps markets should pay most attention to the various comments from other Fed officials attending, specifically yesterday evening's comments from Fischer, who noted that "the issue of overheating of the economy is being discussed within the Fed board", and others who were keen to say that rate hikes won't derail the economy. That said the latter hardly provides much 'guidance' on when the FOMC might make its next move, but then again markets clearly need to get used to not being the pampered child of central banks.
As for the longer-term issues, she may well talk about a rethink on when the Fed might start to shrink its balance sheet (if ever), merits / risk of negative rates, long-term impact of low interest rates (across the curve), and co-ordination of monetary and fiscal policy (as per the Williams paper: (
http://www.frbsf.org/economic-resea...licy-and-low-r-star-natural-rate-of-interest/), though one suspects she will probably lean against talk of a higher inflation target and/or a change to dual employment/ inflation policy targets. It Will be particularly interesting to see what she says about how "international developments" impact Fed policymaking, particularly from the aspect that it is the potential "negative feedback loops" into the US financial sector, rather the economic impact, which the FOMC appears to be most concerned about; per se there is a strong macro-prudential cross-current within this, with Fed speakers differing as much on how (even if) this should be integrated into policy decisions, as they differ on what trends and levels in labour market and inflation indicators should trigger policy moves. In that respect Mr Kuroda's comments on the policy outlook at tomorrow's panel discussion will also need to be closely watched, in so far as it is now very unclear what the BoJ will or will not do next.
from Marc Ostwald
