MILANO – The difficult balance between the need to be an inflation firefighter and the fear of triggering an economic slowdown towards recession continues to haunt central banks. And, depending on whether the wind blows one way or the other, the financial markets are affected accordingly.
It has been seen in the last week, the first in negative after a recovery that had lasted for four octaves. In part, noted Antonio Cesarano, Intermonte’s chief global strategist, the closing movement of short positions has been exhausted. That is the downward bets that some large funds (such as Bridgewater) had placed on the trend of the markets, which have hit their target. Once the indices fell, these positions were filled and an upward movement was generated. Now everything becomes more uncertain.
First, the question weighs what central banks will do. The hawkish comments from Fed board member James Bullard, helped to undermine the optimism of traders who were now counting on a slowdown in monetary tightening. Yesterday also in Europe there were words to this effect. He said them in an interview with the newspaper Rheinische Post the president of the Bundesbank, Joachim Nagel, who declared himself in favor of new increases in interest rates by the ECB. “Given the high inflation, further increases in interest rates will have to follow” he explained, without however providing further details on the extent of these increases given that “the past months have shown us that we have to decide on monetary policy meeting by meeting”. And this conviction was confirmed despite the admission that “if the energy crisis worsens – he added – a recession next winter seems likely”.
Also in the light of these discussions, the symposium of Jackson Hole, a crucial event for the resumption of the activities of central bankers. In particular, the intervention of the number one of the Fed, Jerome, is expected on Friday 26th Powell, from which indications could emerge on the extent of the rate hike expected for September, which currently fluctuates between half a point and 0.75%. Attention then to the indications on how the Fed will want to manage the budget cut. But we also look at the minutes of the ECB, which are coming soon.
It must also be said that upon returning from holidays many Europeans will find an economy more fragile than they left it and then the SME indices, which anticipate the economic trend through the judgments of the purchasing managers of the companies, will be at the center. of investor attention next week. Then, eyes focused on gas performance: after Gazprom announced the new closure of the Nord Stream 1 pipeline, panic on the energy market immediately started.
At the Dutch hub of reference Ttf, the price jumped on Friday to a new record of 261 euros per megawatt hour and then fell back, at the end of trading, to 244.5 euros.
In Italy, the Rimini Meeting will be the stage for an electoral campaign which is viewed with some apprehension, as shown by the widening of the BTP-Bund spread.
Here is the agenda Ansa for the week:
MONDAY 22 few macro data and not particularly significant. Above all, Hong Kong inflation and the rate decision in Israel. In Amsterdam, methane futures resume trading, which will discount Gazprom’s decision to close the Nord Stream for three days for maintenance.
TUESDAY 23 the leaders of the main Italian parties will meet at the Rimini Meeting. On the macro front, the SME indices for services and manufacturing are expected in France, Germany, the Eurozone, Japan, Great Britain and the United States, which in August should signal a further slowdown in economic activity. The Richmond Fed manufacturing index and the data on new home sales will also arrive from the US. At Bocconi the ECB member Fabio Panetta will speak.
WEDNESDAY 24 data on existing home sales and US crude oil inventories are on the agenda. Prime Minister Mario Draghi will speak in Rimini. In the US, speech by the non-voting member of the Fed, Neel Kashkari.
THURSDAY 24th the Jackson Hole forum opens while the minutes of the ECB will shed light on the discussions within the board of last July. The final reading of second quarter GDP should confirm zero growth in Germany and a 0.9% decline in US gross domestic product. The Ifo index will also come from Berlin while the data on unemployment benefits from New York.
FRIDAY all eyes on Jerome Powell’s speech in Jackson Hole. Confidence indicators are expected from Italy, while the bulk of macro data will come from the US: trade balance, household spending and income, the University of Michigan confidence index.