{"id":210847,"date":"2024-08-22T12:42:09","date_gmt":"2024-08-22T16:42:09","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=210847"},"modified":"2024-08-23T03:43:50","modified_gmt":"2024-08-23T07:43:50","slug":"markets-cry-wolf-ahead-of-jackson-hole-powell","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/markets-cry-wolf-ahead-of-jackson-hole-powell\/","title":{"rendered":"Markets Cry Wolf Ahead of Jackson Hole, Powell: Aug. 22, 2024"},"content":{"rendered":"\n

Investors are digesting a buffet of economic data today ahead of tomorrow\u2019s largely awaited Jackson Hole presentation by Federal Reserve Chair Jerome Powell. Indeed, the calendar featured flash PMIs for the EU & US, Unemployment Claims and Existing Home Sales, but the most influential figure of the morning happened to be US services activity, which accelerated at one of the briskest rates of the year. Stocks surrendered early advances as a result and yields gained upside momentum as rate watchers pared back expectations for the speed at which the Fed will walk down the monetary policy stairs. Talk of a 50-bp reduction next month is certainly winding down, with the IBKR Forecast Trader<\/a> and Fed Funds Futures favoring a quarter point with probabilities at 85% and 76%, respectively.<\/p>\n\n\n\n

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Manufacturing Dwells in the Catacombs but Services Sector Expands<\/strong><\/h2>\n\n\n\n

This month\u2019s stateside economic activity remained buoyant even as manufacturing lingered in the tombs. August\u2019s flash Purchasing Managers\u2019 Indices (PMI) for Services and Manufacturing came in at 55.2 and 48, compared to expectations of 54 and 49.6 and July\u2019s 55 and 49.6. The bifurcated action has certainly been a global phenomenon, with services consistently above the contraction-expansion threshold of 50, while manufacturing has persistently stayed beneath that level. In fact, the US category slipped to its deepest condition all year and to levels consistent with the 2008 recession.<\/p>\n\n\n\n

\"PMI\"<\/figure>\n\n\n\n

The demand and confidence pictures were buoyant in services but dismal in manufacturing; nevertheless, hiring contracted across the board. The headcount reductions resulted from revenue weakness in the former sector, but the latter was hampered by staffing difficulties and challenges with replacing job leavers, pushing up labor costs. Input costs also increased due to loftier materials and shipping prices. Still, inflationary pressures remained subdued, as the expense pressure momentum wasn\u2019t met with loftier stickers. The development points to servicers taking the hit to margins rather than passing rising charges to consumers in an effort to preserve revenues. The dynamic is consistent with fading corporate earnings prospects.<\/p>\n\n\n\n

Eurozone PMIs Reflect Similar Trend<\/strong><\/h2>\n\n\n\n

Across the Atlantic, eurozone flash PMIs similarly reflected strength in services but weakness in manufacturing. The PMIs arrived at 53.3 and 45.6, respectively, compared to projections of 51.9 and 45.8. Nonetheless, new orders, employment, and sentiment slipped. And while selling prices weakened, similar to the US, input costs rose. The Paris Olympics helped to propel figures overall, but sluggishness out of Berlin countered the buoyancy from the East. Finally, without fierce services spending due to the games, these figures would likely have been much weaker and are clouding the path down the monetary policy stairs for the European Central Bank.<\/p>\n\n\n\n

\"Euro<\/figure>\n\n\n\n

Home Shoppers Emerge From Interest-Rate Hibernation<\/strong><\/h2>\n\n\n\n

Turning to the real estate market, I\u2019ve been calling for a recovery, including when I was interviewed live by Yahoo Finance<\/a> in New York City last week. I based this outlook, in part, on my view folks are clamoring for the American Dream. The reduction in mortgage rates last month certainly brought in buyers, with the pace of existing home sales rising 1.3% month over month (m\/m) to 3.95 million seasonally adjusted annualized units. July\u2019s result was the first increase since February and exceeded expectations of 3.93 million as well as June\u2019s 3.9 million. Inventories also rose to 1.33 million units, up 0.8% m\/m as prospective sellers increasingly step in. Across regions, the Northeast, West, and South saw m\/m transaction increases of 4.3%, 1.4% and 1.1% while the Midwest was unchanged.<\/p>\n\n\n\n

\"Existing<\/figure>\n\n\n\n

Labor Market is Headwind for Inflation Doves<\/strong><\/h2>\n\n\n\n

The anticipated journey down the monetary policy stairs is also slowing due to unemployment claims offering little surprises and coming in well-anchored. Initial unemployment claims climbed slightly to 232,000 from 228,000 for the week ended August 17 and arrived above the median estimate of 230,000. Similarly, continuing unemployment claims rose modestly to 1.863 million from 1.859 million for the week that finished on August 10, but below projections of 1.870 million. Four-week moving averages were bifurcated, however, with the initial segment slipping from 236,750 to 236,000 while continuing filings rose from 1.861 million to 1.866 million.\u00a0<\/p>\n\n\n\n

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Consumers Say Bon Voyage to Retailers as They Splurge on Cruises<\/strong><\/h2>\n\n\n\n

Increased marketing has helped Urban Outfitters modestly counter the impact of weakening consumer discretionary spending while in big-box discount land, BJ\u2019s has experienced an uptick in store traffic, which has contributed to only subdued revenue growth. In other news, consumers are continuing to splurge on travel while artificial intelligence has helped Zoom Communications retain clients. Those trends surfaced in the following earnings developments:<\/p>\n\n\n\n