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Navigating global economic events: A look at this week's highlights

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2023-08-21

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The global events diary slows this week, but that doesn't mean there won't be major events to hold investor attention.

Today, the Chinese government shows the world that its economy is sliding into deflationary stagnation with the second cut in the Prime Loan Rate since June. Strong economies need rate rises at times, not two rate cuts within a couple of months – the one in June having had no impact whatsoever.

The end of the week sees attention switch to Jackson Hole, in the US state of Wyoming, for the annual economic policy conference organized by the Kansas City Fed. The star attraction, as usual, is the keynote address from the current Fed chair – this year, it's Jay Powell, as it was in 2022.

The 2023 Economic Policy Symposium, titled "Structural Shifts in the Global Economy," will be held from August 24 to 26. Powell’s speech on Friday morning at 10:05 am (US Eastern time) will focus on the economic outlook for the US, according to a brief statement from the Fed last week.

Last year, Powell captured the audience's attention by twice warning of the challenges involved in controlling inflation. His speech was short but not especially sweet. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.

This year will be very different – the economy is booming, according to many analysts, with GDP growing at an annual rate of 5.85%, as per the real-time GDP estimate from the Atlanta Fed. There hasn’t been much pain, except for some tech, retail, and other sectors. Unemployment remains low, job vacancies are high, and real wage growth has re-emerged in recent months. Moreover, inflation is lower than a year ago.

However, interest fears have returned; US bond yields are back well above 4.2%, and the US dollar has strengthened, leaving the stock market looking weak. Investors are increasingly worried that the strength of the economy (and not inflation) will force the Fed to raise rates at its September meeting, instead of maintaining the status quo.

Earnings reports in Australia and China are set to increase this week, while they slow down in the US and Europe. Wednesday will witness the release of the flash August business conditions surveys for the US, Europe, Japan, and Australia. These reports will be closely watched to determine whether the recent declines recorded in most countries will continue or not

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