Flemming J. Nielsen
Danske Bank A/S
Market movers today
Focus will be on Janet Yellen's speech in Jackson Hole at 16:00 CET. Yellen speaks on the subject of the labour market - the key component to the timing of the first rate hike. However, Yellen has spoken extensively on this subject before and it is hard to imagine she can come up with much new given how much time the Fed has spent on analysing this area. Yellen's view is clear - that there is still significant slack in the labour market, which is backed up by very moderate wage increases. According to the minutes of the latest Fed meeting, many members expressed that the Fed might soon change the description of the underutilisation of labour. If Yellen comments on policy at all, she is likely to repeat the phrase from the semi-annual testimony that if the labour market continues to improve faster than expected, the risk is that the first rate hike could come sooner than currently projected.
ECB-president Mario Draghi will speak at 20:30 CET in Jackson Hole after market close in Europe. It is unclear to what degree he will stick to the labour market theme that at the moment is less decisive for monetary policy in the euro area.
Fitch is expected to confirm its current triple-A rating of Denmark.
Selected market news
Risk sentiment overall remains positive but the market is gradually going in waitand- see mode ahead of Fed chairwomen Janet Yellen’s speech this afternoon. Yesterday’s macroeconomic data were mixed. In the US data were better than expected across the board and the housing data particularly continued to suggest that the headwinds are easing. However, the PMI data released yesterday suggest that the recovery in the euro area and China remains fragile.
In the US S&P 500 closed at a new record high yesterday and Asian stock markets are mostly higher this morning, taking their lead from the US. In the FX market the USD is taking a breather after the recent sharp appreciation and the major FX crosses have been largely range trading overnight. 10-year US bond yields have also declined slightly since market close in Europe yesterday, as the market has turned its attention from the slightly hawkish Fed minutes to Yellen’s speech later today.
In connection with the official opening of the Jackson Hole central bank conference yesterday, some of Fed’s hawks had the opportunity to express their views. Kansas City Fed President Esther George, the conference host, in her opening remarks said broadbased employment gains suggest that the US economy is strong enough to withstand higher interest rates. Philadelphia Fed president Charles Plosser, who dissented at the last Fed meeting, said that very easy monetary policy is increasingly risky. Plosser also warned against making wage development the centrepiece of monetary policy, as its relationship with inflation is not strong. Recently Bank of England has started to link its interest rate closer to wages.
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