skip to Main Content

Zurich Weekly News – Monday 28th of August 2023

Friday closed out a mixed week for equities as investors digested comments from this year’s Jackson Hole Symposium. As markets now begin to show increased activity after the historically slow month of August, the Federal Reserve’s annual Jackson Hole symposium often portends the current thinking of major monetary policymakers. This year’s speech from Fed Chair Jerome Powell outlined that inflation must be brought down to its target of 2% and that the Fed are prepared to continue to raise rates if needs be. However, Powell’s speech was more moderate than previous iterations, most notably in 2022 which saw hopes for a halt to hikes quashed, causing a broad sell-off in markets.


Preceding the conference, US stocks rose, and bond yields fell as investors viewed slowing economic data as evidence for central banks having to halt rate increases. One such data point was the release of the US manufacturing and services Purchasing Managers Indexes (PMIs), which measures the rate of business activity in the US. The Manufacturing PMI for August declined to 47.0, down from 49.0 in July, whilst Services declined to 51.0, down from 52.2. Figures below 50 indicate a contraction in their sector of the economy. Despite the decline in economic growth, investors took the news positively as in recent weeks’ strong economic data has aided the case for higher interest rates which in turn negatively affected risk assets.


In Europe, investors were encouraged by similar PMIs for Manufacturing and Services. Both the European Manufacturing and European Services PMIs were in contractionary territory in August, leading to optimism in terms of a potential monetary policy shift. Disappointing signs from China however highlighted that whilst lower leading indicators may lead to more dovish monetary policy it does still represent a slowing economy. Signs of deflation and high youth unemployment in the country last week saw investors pessimistic about any resurgence in the Chinese economy. Chinese officials continue to grapple with these issues as they try to stimulate long awaited growth following a prolonged period of covid lockdowns.