BlackRock Market Outlook: Little News from Jackson Hole

The update for the week with Dr. Martin Lück, Head of Capital Market Strategy at BlackRock

BlackRock Market Outlook August 31, 2021

Unlike in 2020, the much-anticipated central banker symposium in Jackson Hole delivered nothing groundbreaking. No new Fed strategy, no re-evaluation of target weights, no excursions into social issues outside of traditional monetary policy. Instead, in the speech by Fed Chairman Jerome Powell, there was another building block in preparing the markets for what is certain to come in the foreseeable future, namely the gradual reduction in bond purchases. Powell indicated that the required ‘substantial further progress’ in inflation had been made, i.e. that progress had been made with the new strategy, Average Inflation Targeting (AIT), by overshooting the 2% target. Indeed, the unadjusted momentum in consumer prices in the US is currently above 5%, and the core PCE, observed by the Fed as a target rate, accelerated again to 3.6% in August. However, the desired goal on the labor market has been achieved less clearly, and more progress is required here, according to Powell. In fact, the unemployment rate of 5.4% is still too high and more needs to be done before the Fed can report success on employment. There may be more data on this this coming Friday when the labor market report (non-farm payrolls) for August is published. After the very strong July figures (943,000 new jobs created outside of agriculture), market observers are again expecting strong growth (665,000) and a decline in the unemployment rate to 5.2%.

Possibly there is the potential for disappointment at the end of the week. Most recently, activity indicators (the previous week, for example, the purchasing managers’ indices as well as the output indicators of the Fed Richmond and Fed Kansas) once again pointed to weaker macroeconomic dynamics, a pattern that was also evident in the previous weeks on the consumption side (such as retail or the University of Michigan index ) had shown. In Jerome Powell’s speech in Jackson Hole, a certain amount of caution was built in with regard to further economic development and the view of tapering. Powell referred to the spread of the delta variant and its potentially slowing effect on overall economic demand. Even if an entry into tapering, i.e. the gradual meltdown of monthly bond purchases from currently USD 120 billion, seems absolutely realistic this year, December seems more likely than November against the background of the uncertainties. And certainly not, according to Powell, should one infer the time of the first rate hike from the pace of the slowdown that has then taken. Because before the time comes, the Fed has developed a “different and very stringent test”, in other words: the hurdles for the first interest rate hike are once again considerably higher than those for tapering. A major factor in this test is likely to be whether the Fed’s current assessment that inflationary momentum is temporary is proven to be correct.

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The first TV debate by the Chancellor candidates provides little evidence

The first TV ‘Triell’ of the three candidates Armin Laschet, Olaf Scholz and Annalena Baerbock was characterized above all by the attempt by the three candidates not to make any mistakes or not to scare the voters away. Naturally, Scholz, who has meanwhile been the leader in some surveys, switched to defending while Baerbock and Laschet tried to get out of cover. Nobody succeeded in this really convincingly, so it is no wonder that in surveys Scholz is usually seen as a narrow winner. On September 26th, it will depend on whether a majority of voters consider a policy change necessary or whether fear of the resulting changes outweighs them. For voters located in the latter camp, Laschet, for example, served as a stable status quo variant. It should also be decisive whether Olaf Scholz succeeds in continuing to sell himself successfully as a male Merkel clone, experienced and reliably, or whether Wirecard, Cum / Ex or the crucial question of a possible coalition with the Left Party still throws him out of the curve. In all of this, Baerbock seems to only play an outsider role, her party possibly that of kingmaker. And as much as the election campaign is shaped by its unconvincing, sometimes downright boring candidates, the choice could be decisive for companies, the social structure and Germany’s role in Europe and the world. Likewise, the question of whether the energy transition is designed more as an opportunity or a threat. From an investor’s perspective, it would therefore be a mistake, at least in the longer term, to underestimate the potential impact of this choice.

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