What to watch: Markets Hold Their Breath Ahead of Jackson Hole

The third trading week of August holds the potential to be both a week of transition as well as high anticipation for global financial markets.

Following the meeting that took place between the United States and Russian President at the end of last week regarding bringing a hopeful end to the Russia-Ukraine conflict, there is some likelihood that investors could be encouraged to trade cautiously until there are signals provided that the prolonged Russia-Ukraine conflict might come to an end. The scheduled visit of the Ukrainian President to the Whitehouse on Monday will hopefully bring some fresh light to the situation. This means that there is a risk of investor sentiment changing quickly if we get some clarity regarding whether the Russia-Ukraine situation can be imminently resolved.

In terms of the economic calendar, the schedule builds up throughout the week with key inflation and consumption data on the radar. However, the main event will be the Jackson Hole Symposium at the end of the week, where the speech from Federal Reserve Chair Jerome Powell could set the course for the markets over the remainder of the trading year - if he provides guidance on a potential timeframe for the US Central Bank to resume cutting interest rates.

• Tuesday, 19th August: New Zealand Interest Rate Decision

The first key event of the week can be considered as the Reserve Bank of New Zealand (RBNZ) interest rate decision. The market is anticipating a 25-basis-point interest rate cut, which would set the main rate at 3.00%.

Should this happen, the RBNZ would resume the easing cycle it began exactly one year ago, when the benchmark rate stood at 5.50%. Traders are likely to monitor the impact on the NZD/USD pair, depending on whether the RBNZ meets or surprises market expectations.

• Wednesday, 20th August: UK Inflation and FOMC Minutes

Mid-week will be defined by inflation and monetary policy. Earlier on Wednesday, the United Kingdom will release its Consumer Price Index (CPI), a vital piece of inflation data that holds influence for upcoming Bank of England meetings. The market expects annualized inflation of 3.7%, which might bring sensitivity to UK assets when considering that there was dissent within the BoE just weeks ago as to whether UK interest rates can be lowered further.

• • This release will likely have an impact on the GBP/USD and the FTSE 100 index.

Later in the day, the market will scrutinise the minutes from the latest Federal Open Market Committee (FOMC) meeting. Investors will be looking for details on the internal debate among Fed members regarding inflation and the future path of US interest rates. While no major revelations are expected, any nuances in the language can be interpreted as a clue ahead of Powell's speech later in the week.

• Thursday, 21st August: Final data before the main Event

Thursday will provide the final pieces of the economic puzzle before Jackson Hole.

Key releases include the Philadelphia Fed Manufacturing Index (PMI), which is forecast at 49.9 (just below the 50-point mark that separates contraction from expansion), and the weekly unemployment claims, expected at 227,000.

• • Traders will monitor the US Dollar and the S&P 500 index for reactions to both releases.

On the corporate earnings front, Walmart is set to report its results before the US market opens, with market expectations at:

• • EPS of $0.72
• • Revenue of $175.68 billion

Any significant deviation from these forecasts could trigger sharp volatility in its share price.

These data points will complete the picture of economic and labour market health, serving as the backdrop for Friday's address. Markets are expected to trade nervously with subdued movements as anticipation grows.

• Friday, 22nd August: The financial world watches Jackson Hole

On Friday, all attention will turn to the Economic Policy Symposium in Jackson Hole, Wyoming. Although the event runs into the weekend, the market will be hanging on the words of Fed Chair Jerome Powell's speech.

His address is arguably the most anticipated event of the month and could have the following impact:

• • A hawkish tone, emphasising that the fight against inflation is not over, could trigger a sell-off in equities and a strengthening of the dollar.
• • Conversely, a more dovish tone, acknowledging progress on inflation (as well as some concerns over softening US economic data) and opening the door to future US rate cuts, could unleash a strong rally in equities and weaken the dollar.

Volatility could be extremely high during and after his address, and his comments will likely set the narrative and direction for financial markets in the coming weeks.