- US MBA mortgage applications w.e. 15 August -1.4% vs +10.9% prior
- Watch out for split between dovish dissents and more cautious Fed stance in minutes - MS
- What else to expect from the Jackson Hole Symposium later this week?
- The summer lull drags on in Europe as we continue to wait on key risk events this week
- Eurozone July final CPI +2.0% vs +2.0% y/y prelim
- ECB's Lagarde: Trade deals haven't eliminated uncertainty
- European stocks get caught in the mud as markets hold caution for now
- Latest UK inflation data puts the BOE in an even tougher spot
- What are the main events for today?
- Germany July PPI -0.1% vs +0.1% m/m expected
- UK July CPI +3.8% vs +3.7% y/y expected
- FX option expiries for 20 August 10am New York cut
It's been another boring European session today with limited newsflow and data releases. The main highlight was the UK CPI report. The data surprised to the upside once again with services inflation jumping back to 5.0% YoY. In hindsight, the BoE really shouldn't have cut the bank rate at the last meeting. Their inflation problem is severe and persistent.
The Pound rallied following the data release but eventually got back to the levels seen before the CPI as the repricing in interest rates expectations wasn't that big. This is due to the central bank's reaction function which favours either a longer pause or rate cuts. So there's not much to price out but a lot to price in.
Other than that, we haven't got anything of note. The markets continue to either range or stay on the defensive side heading into Fed Chair Powell's speech at the Jackson Hole Symposium.
Most likely, Powell won’t pre-commit to anything and just reiterate that they will decide based on the totality of the data. This is the baseline market expectation. If he were to signal a rate cut in September, then risk assets will likely rally as hedges get unwound.
Conversely, if he were to close the door for September by saying something like “we might not have enough data to consider a rate cut in September”, it would be interpreted as hawkish, and we should see some risk-off with the US dollar getting bid across the board.
