Sterling and markets calm ahead of Jackson Hole bankers meeting - as it happened
ECB's Mario Draghi and Federal Reserve's Janet Yellen set to give keynote speeches
- Cohn felt "enormous pressure" to quit White House
- German confirms strong GDP growth but business sentiment dips
- Pound unlikely to hit parity with euro - ING
- Oil climbs on Hurricane Harvey fears
2.10pm BST
Markets remain calm ahead of the Jackson Hole speeches from ECB boss Mario Draghi and US Federal Reserve chair Janet Yellen.
Most analysts expect the central bankers to be cautious about their comments, especially Draghi.
1.49pm BST
US durable gds #order -6.8% July as expect: #Boeing order plunge after June surge. Overall, good core orders (+3.5y/y) & shipments (5.7%y/y) pic.twitter.com/Rz5wbyPbZx
1.42pm BST
Commenting on the durable goods numbers, Dennis de Jong, managing director of UFX.com, said:
The ever-volatile durable goods report delivered once again today, with figures showing a 6.8% decline in orders for July.
Investors will be concerned on the back of today's results. Not only will support for the dollar dampen, the downbeat numbers will cast further shadows over the US growth outlook.
1.39pm BST
US orders for durable goods - long lasting items such as cars and washing machines - fell by more than expected last month.
They fell by 6.8% compared to a 6.4% rise in June and expectations of a 6% decline, according to the US Census Bureau. The fall is the biggest since 2014.
1.11pm BST
All eyes may be on ECB president Mario Draghi and whatever comments he may or may not make at Jackson Hole about tapering its bond buying programme or the strength of the euro. But what action will the ECB actually take? Does the ECB even know what to do next? Economist Carsten Brzeski at ING says:
When the ECB currently looks at the Eurozone, it sees a modest party with people enjoying themselves. The party is far from over but it could probably do with fewer QE drinks served by one of the hosts: Mario Draghi. In fact, serving less would come in handy as the drinks in Mario's fridge are running low. But how to tell the party guests? And how to do it without getting called out as a party pooper?
In our view, the main arguments in favour of tapering are the successful defeat of the deflation risk, the strong economic recovery and bond scarcity. Tapering should be a cautious and very gradual withdrawal of some monetary stimulus, preferably without causing any tightening of financial conditions.
11.42am BST
The Financial Times interview with Gary Cohn, head of the White House economic council, also contains positive news for those hoping for tax reforms.
President Trump has been singularly unsuccessful so far in pushing through much of his agenda, and markets have almost given up on expected the long promised reforms. But Cohn said Trump will launch a major push on tax reform next week with a speech in Missouri.
The [US] index has already had a bit of good news this Friday. Trump's economic advisor has stated in an interview with the Financial Times that felt duty bound to stay on as part of the administration despite the President's failure to fully condemn the neo-Nazis in Charlottesville, putting to bed rumours of his departure.
Cohn went further, claiming that Trump will put tax reform back on the agenda next week with a speech in Missouri - no doubt a relief for investors desperate for a sign that the President will deliver on his market-lifting promises. Whether he can push through said reforms, however, is another matter entirely.
11.16am BST
In tandem with the European markets, Wall Street is expected to open marginally higher ahead of the Jackson Hole shindig.
The Dow Jones Industrial Average is expected to climb around 23 points or around 0.1% in early trading, while most European markets are currently around 0.3% higher. Craig Erlam, senior market analyst at Oanda, said:
The Jackson Hole Symposium is widely regarded as one of the most notable annual events, not only because of the speakers it attracts but also because it has been used as a platform to warn of upcoming policy announcements. In the past it has been Janet Yellen's predecessors - Alan Greenspan and Ben Bernanke - that have delivered such warnings, the question today is whether she will do the same.
The final months of the year are going to be very interesting as far as the Fed and the ECB are concerned which makes today's appearances from Fed Chair Yellen and ECB President Mario Draghi all the more interesting. Both central banks have started the process of tightening monetary policy, although the ECB would probably claim it's more a case of removing accommodation. Either way, with the process underway, investors are keen to know what they plan next.
11.10am BST
Over to the US, and there had been some concerns in recent days that Gary Cohn, the head of the White House national economic council, might step down in the wake of Donald Trump's comments over the violence at Charlottesville. Markets certainly did not like the idea, given his crucial role and the number of executives who had already quit various government councils.
Now in an interview with the Financial Times () Cohn said he had come under enormous pressure to resign but felt duty bound to carry on. But he said the current administration had to do more to condemn neo-Nazis and white supremacists. He told the FT:
This administration can and must do better in consistently and unequivocally condemning these groups and do everything we can to heal the deep divisions that exist in our communities...
As a Jewish American, I will not allow neo-Nazis ranting 'Jews will not replace us' to cause this Jew to leave his job. I feel deep empathy for all who have been targeted by these hate groups. We must all unite together against them.
10.17am BST
Markets are holding onto their gains, but investors are reluctant to commit themselves ahead of the key Jackson Hole speeches. Joshua Mahony, market analyst at IG, said:
Indecision is rife across financial markets this morning, as the impending appearances from Mario Draghi and Janet Yellen mean that there remains little certainty over how this week is likely to close out. For the most part we are likely to hear Draghi reiterate his stance from earlier in the week, with ECB sources recently speculating that Draghi wouldn't announce any new policy shifts at today's speech. However, we could see Janet Yellen steal the headlines, with today marking her final Jackson Hole appearance before Donald Trump decides her future in February.
Hurricane Harvey is bearing down upon the Gulf coast, with traders moving into crude oil given the potential for a massive disruption to a region which accounts for 45% of the nation's refining capacity and 17% of US output. With possibly the biggest storm in over a decade to hit American soil heading straight into the oil producing heartlands, there is the potential for huge disruption both at sea and inland. With three refineries already shutting down ahead of the storm, there is a significant chance that we will see a major disruption to the extraction and refining of crude oil and gasoline irrespective of any physical damage.
9.40am BST
The continuing strength of the German economy, as shown earlier by the GDP figures, has been reinforced by the latest business survey.
Despite slipping slightly after six consecutive rises, the Ifo business climate index at 115.9 still met expectations. Clemens Fuest, resident of the ifo Institute, said:
The ifo Business Climate Index edged downwards from 116.0 points last month to 115.9 points in August. But sentiment among German businesses remains very strong. The decline was due to slightly less positive assessments of the current business situation. Companies' short-term business outlook, by contrast, improved. Germany's economy remains on track for growth.
The Ifo index dropped only marginally in August, confirming the almost breathtaking strength of the German economy.
After six consecutive increases and three all-time highs in a row, Germany's most prominent leading indicator, the Ifo index, just dropped for the first time. The drop, however, was only marginal and the Ifo now stands at 115.9, from 116.0 in July. Interestingly, the decrease was exclusively driven by the current assessment component. Expectations increased to 107.9, from 107.3 in July.
9.25am BST
8.59am BST
The pound is holding fairly steady after a downbeat week dominated by Brexit worries, edging lower against the dollar but marginally higher against the euro.
It is currently at 1.2798, down 0.01%, and a1.0860, up 0.09%. In recent days it has been flirting with eight year lows against the single currency, with some talk of it falling to parity. But Viraj Patel, foreign exchange strategist at ING Bank, thinks this is unlikely:
The pound has been an easy target for currency markets as the combination of a post-Brexit economic reality check and ongoing political anxiety has made the UK economy an outlier relative to its faster growing European peers. We believe this economic divergence story has largely run its course. In fact, the pound is beginning to show signs of idiosyncratic selling, similar to previous periods when domestic political risks have flared up.
We make two points here. First, this tends to be a short-run phenomenon, with the pound's material undervaluation acting as a limiting factor for sustained weakness. Second, and more importantly, we would need to see an additional layer of bad news to fuel any further politically-induced GBP selling. This seems unlikely in the absence of a Brexit disaster situation unfolding - that is a complete breakdown in UK-EU negotiations and renewed cliff-edge risks. Political will from both sides suggests the worst-case scenario will be avoided.
The euro has become a 'political haven' for currency markets
We had earmarked October as being a pivotal month for the pound regarding political risk events. The Tory Party Conference (1-4 October), the final round of opening Brexit talks (9 October) and EU summit (19-20 October) will give markets an opportunity to assess the progress made when it comes to the UK's exit from the EU. These event risks mean that it is understandable to see the pound markets trading with some apprehension. We have been warning of a potential 'sell on (PM) May and go away' type of behaviour emerging ahead of October.
Political will suggests a Brexit disaster can be avoided
For the pound's politically-driven weakness to persist and extend all the way towards parity against the euro, we would argue that 'hard Brexit' risks would need to notch up another gear. In reality, the only way this could occur over the next six months is if we get a nightmare Brexit scenario in October - that is a complete breakdown of UK-EU negotiations.
The pound is cheap, very cheap
We see the pound as extremely undervalued, with the very stretched valuation likely putting a limit on the scale of further downside. EUR/GBP is rich by a staggering 20% based on our medium-term Behavioural Equilibrium Exchange Rate valuation framework. Even if we control for the post 2015 rise in pound fair value due to improving UK terms of trade and declining UK government consumption, EUR/GBP would still be overvalued by 14%. When the medium-term valuation reaches such extreme levels, it tends to be difficult for the currency to weaken materially given the limits imposed by the underlying fundamentals.
Apart from one (or more) of our four assumptions turning out to be wrong, currency markets can sometimes be an untamed beast. Just because the pound is undervalued doesn't mean it should rally. There needs to be some positive catalysts for the pound to manifest, not least signs of a stabilisation in a slowing UK economy and greater progress towards a Brexit transition deal (even if not fully agreed). But certainly, the very negative psychology needs to be broken, such that the pound is not such a clear sell on rallies. Indeed we - and the BoE - are on the look-out for a 'sell UK' mentality developing, where the pound, gilts and equities all sell-off at the same time. This, however, has not been the case so far.
If that mood was to develop, with pound weakness proving more trouble for the inflation trajectory, the IMF might recommend sharp rate hikes to break the vicious cycle. Typically that has been the prescription for significant 20% falls for the likes of the Russian ruble, Turkish lira and Brazilian real. Of course, the UK has had some painful experiences in using rate hikes to defend the pound (think 1992), and we very much doubt that the BoE would do that to support the currency. Yet, we believe, the bearish psychology on the pound still needs to be broken.
8.18am BST
Oil prices are climbing as Hurricane Harvey, potentially the biggest to hit the US in more than a decade, approaches Texas.
Brent crude is up nearly 1% at $52.55 a barrel while West Texas Intermediate - the US benchmark - is 0.8% higher at 47.83.on concerns about the disruption the storm could cause. Justin Chan at Numis said:
Hurricane Harvey, a category-three storm, is expected to make landfall Friday night along the central coast of Texas where many refineries are located. The hurricane has continued to strengthen; if Harvey remains a category-three storm on landfall, it will be the strongest to hit the US since 2005.
8.06am BST
Ahead of the main speeches at Jackson Hole, European stock markets have made a positive start to the day.
The FTSE 100 is up 0.2%, Germany's Dax has added 0.11%, France's Cac has climbed 0.15% while Spain's Ibex is 0.2% better.
It's shaping up to be an uneventful trading session, at least until we get past speeches from Janet Yellen and Mario Draghi later this evening. Investors have used the Jackson Hole event as an excuse to go on "pause" despite numerous hints from various insiders that neither Yellen nor Draghi will say anything dramatic when it comes to monetary policy. This is especially true of the Federal Reserve chair...
In other words, this year's symposium should see a return to the days when it was a dry and dusty academic event only of interest to economists. But even though Mr Draghi isn't expected to address the issue of the ECB's a60 billion per month bond purchase programme, some traders believe he may have something to say about the euro. This follows on from last week's release of minutes from the bank's last meeting which showed that the Governing Council were concerned about the current strength of the euro. Some traders feel that the ECB don't want to see the EURUSD get much above 1.2000 and will be listening out for anything that Mr Draghi may say on this matter.
7.54am BST
A revised second quarter growth figure for the German economy was in line with the initial estimates.
The country - the economic powerhouse of the eurozone - saw GDP grow by 0.6% quarter on quarter and 0.8% year on year. Later comes the IFO business confidence index.
7.51am BST
Japan's inflation rate edged up by more than expected in August.
The consumer price index rose from 0.1% in July to 0.5% year on year, compared to expectations of a 0.3% increase. Ipek Ozkardeskaya, senior market analyst at London Capital Group, said:
Improved inflation is good news for the Bank of Japan, even though the Japanese economy is still very far from the 2% inflation goal.
7.43am BST
Good morning, and welcome to our rolling coverage of the latest news from the world economy, the financial markets, the eurozone and business.
Investors will be looking to the Jackson Hole gathering of central bankers in the US for clues to the future of their various quantitative easing and bond buying programmes. In particular speeches by European Central Bank president Mario Draghi and US Federal Reserve chair Janet Yellen will be scoured for clues on policy. David Madden, market analyst at CMC Markets UK, said:
After a long wait the Jackson Hole symposium finally kicked off yesterday, and traders will be paying close attention to the speeches from Janet Yellen and Mario Draghi, which are due to take place today...
We were told by unnamed sources from the European Central Bank (ECB),that Mr Draghi will not be laying down the groundwork for the tapering of the stimulus package. The ECB chief will probably use the speech to congratulate himself on the recovery of the eurozone thanks to the loose monetary policy, but he might use the relatively low inflation rate as an excuse not to talk about reigning in the stimulus package.
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