No surprises in Jackson Hole! As expected, central bankers have confirmed the need to continue the ongoing monetary tightening despite the clouds gathering over growth. As we mentioned in our last “Monday meeting”, we were not expecting a dovish change during this symposium, which had led us to tactically reduce our equity exposure. The speech thus remained resolutely hawkish with little indication of a possible change of course, which contributed to accelerating the decline in the markets.
On the side of Jerome Powell, the message remained in line with his previous releases. The fight against inflation will go through “a lasting period of growth below the long-term trend” with “painful consequences for households and businesses”. The publication of preliminary activity indicators (PMI) for the month of August also confirms the sharp slowdown in the American economy with the Services and Composite PMIs down and in strong contraction territory at 44.1 and 45 respectively. However, US consumption is still showing signs of resistance with spending in volume up 0.2% in July, slightly up on the previous month. On the positive side, PCE inflation continues to show signs of easing with a drop of -0.1% month-on-month (vs. +1% in June) and core PCE inflation (excluding energy and food) which has continued to decline since its February peak. However, as Jerome Powell reminded us, this drop, although positive, is necessary but not sufficient to allow a change in the Fed's monetary policy. The “Fed pivot” is therefore not for now.
On the side of the ECB, the situation is substantially identical. The minutes of the last monetary policy meeting confirm the will of the members of the European institution to continue monetary tightening by abandoning all forward guidance given the lack of visibility in their forecasts. This trend was confirmed the next day at the Jackson Hole symposium with several statements from particularly hawkish ECB members. Thus, an increase of 75 bps during the September meeting cannot be ruled out, François Villeroy de Galhau campaigning for example for the return to a neutral rate, estimated at 1.5% (against 0% today), before the end of the year. No more pleasing on the side of Isabel Schnabel who believes that in order to maintain her credibility in the fight against inflation, an economic “sacrifice” is more and more likely. His declarations will at least have had the merit of stopping the fall of the euro against the dollar, the only short-term means of easing the pressure on energy prices.
The rise in rates therefore continued last week (and today as well) dragging down the equity markets. Jackson Hole thus closes the (beautiful) summer parenthesis and plunges us directly into a return to school under the sign of caution.