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Weekly Economic & Financial Commentary: Powell Delivers Hawkish Message at Jackson Hole

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Fundamental analysis of Forex market

Summary

United States: Economy Still Climbing the Mountain

  • The second estimate of Q2 real GDP posted a 0.6% quarterly decline, slightly better than the first-reported 0.7% drop. New home sales fell 12.6% in July, reflecting the ongoing downshift in housing activity. Durable goods orders were essentially flat in July, while personal income and spending rose 0.2% and 0.1%, respectively. U. Mich. consumer sentiment improved to 58.2 in August.
  • Next week: Home Prices (Tue), ISM Manufacturing Index (Thu), Employment (Fri)

International: Eurozone Growth Pauses, U.K. Growth Slows

  • This week’s data from Europe offered insight on how the surge in inflation is weighing on the economy. In the Eurozone, the August services PMI fell more than expected and the manufacturing PMI also eased, which saw the economy-wide PMI fall to levels consistent with contracting GDP. In the U.K. the August services PMI showed some resilience, while the manufacturing PMI fell. Although U.K. activity is holding up for now, we still expect a U.K. recession in the quarters ahead.
  • Next week: China PMIs (Wed), Eurozone CPI (Wed), Canada GDP (Wed)

Interest Rate Watch: Powell Delivers Hawkish Message at Jackson Hole

  • Fed Chair Jerome Powell delivered a forceful speech in which he stressed that the Fed’s “overarching goal” is to bring inflation back to its 2 percent target. He also stressed that rate may need to be held at a high level for an extended period of time to ensure that inflation is indeed wrung out of the economy.

Credit Market Insights: White House Proposes Student Debt Relief

  • The White House announced its long-awaited student debt relief plan on Wednesday. Individuals making less than $125,000 a year and couples making less than $250,000 will qualify for student loan forgiveness of up to $10,000, or up to $20,000 if they were Pell Grant eligible. In our view, the proposal will not present major inflationary pressure to the current macroeconomic environment.

Topic of the Week: Corporate Profit Margins Widest in 72 Years, Although Inventories Spell Trouble

  • On an after-tax basis, profit margins widened to 15.5%, the highest since 1950. However, big-box retailers are already cautioning a hit to revenues later in the year from a need to move undesired inventory through discounting. Companies are increasingly looking for space to store their inventory, swamping an already exceptionally tight warehouse market.

Full report here.

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