Looking beyond Jackson Hole, the focus next week will be on whether US data can inject some life into the dollar. Missing US inflation, however, is set to remain in the shadows.
Assuming the speeches at Jackson Hole don’t derail asset markets, the theme for next week should continue along the lines of growth without inflation. In particular, Friday’s US NFP headline figure should be robust enough (we forecast +160k) to maintain US 3Q17 GDP expectations near 3% annualised, while 2 extra working days in August should keep wages steady near 2.5% YoY. Following a strong set of European manufacturing confidence data this week, investors should see the glass as half – if not three-quarters full and continue to favour activity currencies and the carry trade – marginally at the expense of the dollar.
ING's Bert Colijn expects Eurozone inflation data next week (Thursday) to have remained weak in August, with the headline figure unchanged at 1.4% and core inflation remaining stable at 1.2%. A continuation of the current subdued inflation environment will no doubt be disappointing to the ECB and makes it increasingly likely that Mario Draghi keeps his cards close to his chest at Jackson Hole tonight. Given the mixed backdrop of improving growth and questionable inflation, we expect any tapering announcement in Autumn will be along the lines of a one-off reduction in monthly purchases to EUR 30 billion - that could last at least until June and further stretched limits on what the ECB can buy. A more flexible and open-ended ECB tapering may present greater two-way risks to markets and could come as a slight disappointment to those looking for another near-term move higher in the EUR.
Next week will provide a stock take on US and Eurozone inflation dynamics, which will play a key role in both the Fed and ECB's near-term policy decisions
Lack of developed market inflationary pressures and limited upside in global bond yields could see a recovery in carry sentiment after a bleak August
Widening bond spreads in Sweden suggest the market is finally starting to question the Riksbank's credibility, while the focus for NOK turns to upcoming elections