To my clients:
It was a mixed week for North American stock markets with the Canadian TSX finishing up 0.1%; the U.S. Dow Jones Index down 0.5%; and the U.S. S&P 500 up 0.8%.
I had intended a rather in-depth note this week focusing upon this morning’s speech by Fed Chairman Jerome Powell at the very important annual Jackson Hole, Wyoming symposium, as well as thoughts on DEFLATION occurring in China and some of the growing concerns for the growth outlook in that country. But these more ambitious intentions will have to be tabled, perhaps for another time, as I’ve had a very busy day. So a very brief point-form summary is all for this week
- Jerome Powell, to my ear, struck an overall neutral tone on the path ahead for U.S. interest rate policy. He emphasized the inflation fight is not yet won, although it is trending in the right direction. He also clearly acknowledged that the lagged effects of previous hikes have yet to work their way through the economy (importantly, he emphasized this point far more than I’ve heard in any other of his speeches the past year and a half).
- Powell’s comments, combined with comments of other Fed Governors (notably Vice-Chair Lael Brainard and Chicago Fed President Austan Goolsbee) suggest to me that, absent a significant deterioration in the inflation outlook between now and the next Fed meeting in September, the Fed will likely not raise rates at that meeting. More broadly, the comments might even suggest that the Fed is leaning toward being done raising rates this cycle (although they definitely left the door open if the situation changes).
- And yes, prices in China are currently deflating. Given the importance of Chinese manufacturing in the global economy, the deflation in Chinese prices may aid the ongoing fight against inflation elsewhere (see above).
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
Scholte Wealth Management
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