Jackson Hole meet risks intensifying investor concerns

Significance

The dollar index has fallen by about 10% since early January, to its lowest since April 2016, under the strain of US President Donald Trump’s political woes and robust euro-area economic activity. The Jackson Hole gathering is unlikely to provide respite. Moreover, while the dollar slide is buoying sentiment towards US equities and emerging markets (EMs), it is dragging euro-area inflation lower, creating a dilemma for the ECB as it considers withdrawing stimulus.

Impacts

• Dollar weakness will help emerging markets (EM) rally, with EM stocks surging and EM local currency debt delivering double digit returns.
• The compression of risk premiums on non-investment grade US corporate debt (‘junk’) to its lowest since 2008-09 will concern investors.
• ECB monetary meetings are on September 7 and October 26; details of QE withdrawal could come at the latter meeting, weighing on markets.
• Jackson Hole may offer clues on the extent to which central bankers across the world will coordinate on monetary policy over the next year.