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- Jackson Hole revives hawks and bears so equities turn lower.
- Bitcoin also suffers as risk appetites turn sour.
- The week ahead is set for more volatility as bond markets reprice and the curve flattens again.
The week finally got its finale with a hawkish Jackson Hole on Friday culminating in a bad week of data on nearly all front bar perhaps inflation. Global PMIs turned south as economies look to be heading straight down the recession route. The PMI debacle spread like a virus with Australia spreading to the UK, Europe, and then the US. Europe started to reprice rate hikes as more and more ECB members came out all hawkish and now 75 basis points may be the tonic for the next ECB meeting. Despite this, the Euro was still unloved due to the energy situation in Europe. The price of European electricity and gas prices continued to soar on the back of the ongoing ramifications of the Russian invasion of Ukraine. This has put added pressure on inflation projections from the EU and so caused the hawkish tilt from ECB members. Sovereign bond yield spreads continued to widen in Europe between the core (Germany, France) and the periphery (Italy, Greece). Not yet at a critical level but it's worth keeping an eye on. This was the source of the near collapse of the Euro during the GFC. This time the ECB has pledged to intervene if the spread gets too wide so the market is likely to test it at some stage. Meanwhile, the Bank of Japan continues to hold rates down and so the yen remains pressured as the dollar/yen is still above 137. Asia it seems is embarking on monetary easing just as the rest of the developed world is tightening. China is increasingly looking to monetary and fiscal stimulus measures to deal with a growing property crisis that could blow up into another GFC event.
Meanwhile back to the week at hand and Powell's description of needing “below trend” growth. Ned Davis has some interesting research showing us that below-trend growth with inflation means underperformance for equities.
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