Weekly focus – US markets shrug off attack on Fed independence

Powell's relatively dovish stance at Jackson Hole a week ago has lingered in markets and rippled through to particularly US equity markets this week. The US outperformed European equities throughout the week, particularly due to a selloff in French banks on the back of an imminent government collapse in France. US treasury yields and Bund yields traded lower while French and peripheral bond spreads widened as French PM Bayrou is phasing a no-confidence vote, once again drawing attention to the French troubles passing sufficient public savings.

President Trump's attempt to fire Fed Governor Cook on the basis of mortgage fraud created some short-term US headwinds in both bond and FX markets but corrected as markets are likely anticipating that Cook can win her legal challenge and be reinstated. The Fed has stated that Cook's status remains unchanged unless a court rules otherwise before the 16-17 September FOMC meeting.

On the data front, the US Conference Board's consumer survey contained some worrying information for the Fed, with inflation expectations picking up again in August, mirroring a similar shift in the Michigan survey. Consumer sentiment declined modestly, and a rising number of consumers perceive jobs as 'hard to get'.

In Europe, IFO data confirmed the stagnation reality in Europe's biggest economy as the current assessment index declined slightly. The expectations index on the other hand increased to its highest level in 3½ years not least on the back of a relatively bright outlook in manufacturing, adding to last week's more upbeat German PMIs. French and Spanish inflation was a bit lower than expected in August, while German inflation was a bit higher. Largely, it points towards unchanged headline inflation in the euro area at the 2.0% target. Euro area bank lending came to a two-year high in July, indicating looser monetary policy is feeding through, and supporting our expectation that the ECB is done cutting rates for now.

We kick off next week with PMIs from China, the official measure already on Sunday. The manufacturing sector disappointed in July and we look for a small comeback. We have a ton of interesting US data coming up, including ISM. Three US labour market reports will be the main attractions, though, and given all the fuzz about the BLS, the ADP report will probably gather some extra attention. For the NFP-report, we expect 80k new jobs, unchanged unemployment rate at 4.2% and average hourly earnings growth of 0.3%. We will also look out for July wage data from Japan, where stronger wage growth is a prerequisite for further rate hikes from the Bank of Japan. July retail sales came in surprisingly weak this week, as particularly food inflation continues to weigh heavy on consumers' purchasing power. On our own continent, we will zoom in on the August inflation data for the entire euro area. We also get unemployment data.

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