In the absence of news or economic data, investors remain in standby mode on Thursday ahead of tomorrow’s speech from Janet Yellen at Jackson Hole.
The US session shouldn’t be quite as uneventful as the European as we do have some important data being released, most notably durable goods orders and the services PMI. Durable goods orders offers great insight into both how the economy is functioning now and expectations for the years ahead so it really is an invaluable release. The number can be quite volatile as it only compared to the previous month but it gives some important insight into how much companies are investing. The numbers have been quite disappointing for most of this year which hasn’t helped convince people that the economy is in as good shape as the unemployment data would suggest and cast doubt on whether the Fed should be looking to raise rates in an environment in which companies are clearly not confident in. Another poor number this month would only cloud the issue further.
The services PMI number will also be monitored very closely as the sector makes up more than two thirds of the US economy and any suggestion that the outlook is dimming will again add to calls to delay the next rate hike, assuming of course that the Fed is still intent on doing so this year. The services PMI number hasn’t filled anyone with confidence this year, dropping considerably back in January during the Chinese Yuan devaluation drama and never really recovering. I guess with global growth concerns only growing, Europe chugging along and Brexit, the services sector in the US isn’t as confident that they are sheltered from the fallout as much as some would suggest.
Once again, this brings us back to the question of not only whether the Fed should be raising interest rates this year but whether it will. Yellen’s speech at Jackson Hole tomorrow remains the headline act this week and prior to that I expect traders to proceed with caution. This event has often been used to warn about upcoming policy changes and whether that is the next hike or a more dovish Fed, we’ll have to wait and see. After all the build up to the event, I wouldn’t be surprised if Yellen once again keeps her cards very close to her chest and the whole things becomes something of an anti-climax.
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