30th August 2023
The annual Jackson Hole Economic Symposium
US equities benefited from some positive company results before all eyes turned to Jackson Hole, Wyoming, last week.
Jackson Hole is becoming renowned for its economic symposium – as well as for being a famous skiing destination. Leading central bank representatives and decision-makers from across the world attend this annual conference to debate problems related to a theme of the year, this year being ‘Structural Shifts in the Global Economy’.
What does the Fed’s short-term future look like?
The speech by Federal Reserve Chairman Jerome Powell has historically received the greatest attention. His speech is often seen as a reliable reflection of the Fed’s thinking and provides insight into the route the central bank is likely to follow in the upcoming months.
Of course, while bankers tried to control inflation, the past year has been dominated by interest rate increases in the western world. The US Federal Reserve have stopped raising interest rates as recent figures show that US inflation has been decreasing towards its 2% objective. Despite this, inflation is still high.
Powell’s speech on Friday drew considerably more attention than normal since there is so much ambiguity over how high interest rates will ultimately proceed.
In contrast to last year, when he made it clear that rates will rise (which is exactly what happened), this year’s speech was a bit more subtle. Powell said that the Fed was ‘navigating by the stars under hazy skies’. Overall, a significant takeaway was that the Fed is still ready to raise interest rates or maintain them at high levels, depending on what the economy demands. He noted:
“At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”
Given that this speech was delivered on Friday, it’s likely that any market responses will come this week.
High stock prices and low PMIs for the US
Last week, outside of the symposium, we received a mixed message regarding the state of the US economy. Technology stock prices enjoyed a strong week thanks to numerous strong earnings results. This includes major chip manufacturer NVIDIA, whose shares have soared this year as a result of advancements fuelled by artificial intelligence.
The US technology sector’s benchmark, the Nasdaq Stock Market, increased by 2.3%, while the S&P 500 gained a modest 0.8%.
On the other hand, the preliminary August Purchasing Managers’ Index (PMI) unfortunately showed that the overall economy still faces difficulties. Economists frequently use PMIs to assess the state of an economy by using surveys from businesses to produce reports.
Both the US and UK manufacturing PMIs for August were below average. Felipe Villarroel, Partner at TwentyFour Asset Management, noted:
“The PMI data is a reminder that the hiking cycle only started 18 months ago and there are lags that are yet to be felt in the real economy.”
Stocks and summits outside of the US
In the eurozone, the MSCI Europe ex UK Index ended the week 0.8% higher as equities on the continent benefited from a drop in natural gas prices. Also rising 1.1%, the FTSE 100 saw its first weekly gain in four weeks.
Outside the Western world, the 15th BRICS (Brazil, Russia, India, China and South Africa) Summit was held in Johannesburg, South Africa, last week, and the meeting wasn’t without its controversies. Due to an arrest warrant issued by the International Criminal Court for war crimes, Russian President Vladimir Putin was unable to attend.
Nevertheless, the gathering served as a means of attempting to establish a counterweight to the existing US hegemony. Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates were among the six new nations the bloc asked to join as part of this mission in January.