Market sentiment can be created in the last week of August by what we hear at the symposium in Jackson Hole – especially it can be important for trading on early Monday. In addition to the reaction to the Fed chairman`s statements, political events in Europe and macroeconomic data seem to be of key importance.
One of the main policy topics will again be brexit and an attempt to estimate the chances of an ordered brexit or brexit without a deal, which may affect the British pound. Currently, the probability of hard brexit is about 40 percent and hasn't changed much lately. In turn, the British pound strengthened, and the GBP/USD rebounded from the round level of 1.2000 and quickly reached 1.2200. Strengthening the pound may owe the statements of Angela Merkel and the President of France, which met British Prime Minister Boris Johnson. The German Chancellor suggested that it is time to reach an agreement by the end of October, and Emmanuel Macron gave Johnson little hope of compromise. With the return of British politicians after a summer break, a process may begin in which they will try to avoid hard Brexit.
Meanwhile, in Italy, where there is a political crisis that may have a negative impact on the euro, a key stage of government formation will take place. Central-left Italian Democrats have until Tuesday to form a coalition with their long-time rivals, the Five Star Movement, after President Sergio Mattarella gave political parties more time to assemble a new parliamentary majority. What's more, the Matteo Salvini League is also prone to coalition with the Movement. The last week of August may be the key to forming a government. Otherwise, we may face elections in late October or early November.
As regards macroeconomic data, it is worth paying attention to the publication of inflation from the euro area on Friday, 30 August at 11:00. If the preliminary reading for July at 1 percent will be confirmed, this may be reflected in the September decision of the European Central Bank. Investors are waiting for a large stimulus package for the European economy. Investors also have to remember about the trade war, because on Friday, August 23, China imposed retaliatory tariffs on the United States’ products worth USD 75 billion. The last week of August may therefore bring even greater escalation of the conflict, and this could spoil investor sentiment. It is worth paying attention to stock indices, yen and Swiss franc.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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