17 to 23 August: The Fed’s symposium and the Republicans’ convention in the limelight

There was a striking decoupling between European and US PMIs in August. The IHS Markit Composite PMI rose to 54.7 (from 50.3 in July), whilst the Composite PMI for the Eurozone declined to 51.6 (vs 54.9 in July). Both manufacturing and services activities contributed to the improvement in the US, suggesting the economy is on the mend from the pandemic-induced recession. Meanwhile, the drop in the Eurozone’s indicator was primarily brought about by a substantial loss of growth momentum in the services sector – which coincides with our view that the economic recovery is unlikely to be a smooth and clean-cut V in the region.

Although the message by the latest PMI print in the US was optimistic, the tone of the Federal Reserve’s latest minutes was quite sobering. The commentary foresaw a prolonged period of economic weakness, where inflation is persistently below target. The FOMC emphasised that the Fed funds rate will remain where it currently is throughout 2021, maybe even longer.

The Republican’s four-day national convention starts today, where President Trump is expected to speak every day. The Fed’s annual two-day economic symposium, traditionally held in Jackson Hole, starts Thursday. Investors will closely follow the Republican’s convention and will also be on the look-out for any indications how the Fed may (or may not) change its monetary policy toolkit.

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