• Markets are preparing for the Jackson Hole Symposium

• Eurozone data supports another ECB rate cut

• PMI surveys for the euro area will be published on Thursday

• Euro remains on the back foot against the pound

Whilst ECB members are probably enjoying their hard-earned holiday break, the countdown to the Jackson Hole Symposium and the crucial September central banks’ meetings has already started. The RBNZ is the latest central bank to ease its monetary policy stance and, interestingly, the first one to openly talk about a recession in the latter part of the year.

Expectations of an imminent recession in the US were the main reason for the recent market rout that scared investors, ignoring the fact that the US data has been relatively satisfactory lately, as portrayed by our custom-made surprise indices. The same cannot be said for eurozone data and especially the German economic releases.

The preliminary GDP prints for the second quarter of 2024 created a sense of optimism in the hawks. Interestingly, the July CPI report for the euro area managed to surprise to the upside with the headline figure printing at 2.6% and the core indicator showing a 2.9% year-on-year increase. In addition, at the July ECB meeting, President Lagarde tried to dent expectations for another rate cut in September.

However, all these are probably not enough to change the current momentum in the ECB council with the market firmly confident that at least 65 bps of extra easing will be announced until year-end on the back of weak economic momentum and the Fed commencing its easing cycle in September.

For the ECB to disappoint the market, two conditions have to be met: (1) the Fed to avoid making a dovish shift at the Jackson Hole Symposium, thus falling shorting from pre-announcing the much talked about rate cut, and (2) the euro area data to show a miraculous improvement.

Chances of these two events happening simultaneously are rather slim but a strong set of PMI survey prints this week could be a good start. Interestingly, the PMI surveys for the manufacturing and services sectors tell a different story for the eurozone.

The manufacturing PMI surveys for both Germany and France are stuck below 50 for a considerable amount of time. Both countries continue to suffer from the consequences of the Ukraine-Russia conflict, the associated competitiveness loss and the lower demand, both from China and domestically.

On the other hand, the PMI services surveys continue to hover above 50 and thus portray a sector in modest expansion. Services inflation has been a key discussion point in the last ECB meetings, appearing in the official ECB press statement, and thus being as the few reasons that inflation remains elevated.

The market is forecasting another mixed set of PMIs. The manufacturing surveys are expected to edge slightly higher, but remain in contractionary territory, while the PMI services figures could weaken a tad. Such an outcome is unlikely to affect the chances of another ECB rate cut in September.

Following the late July BoE rate cut, euro/pound managed to rally considerably higher, negating most of the April-July 2024 downward move. However, mostly on the back of the overall negative outlook for the eurozone, the euro has been losing ground against the pound lately.

Market expectations for aggressive ECB easing are unlikely to be dented by a strong set of PMI surveys but the euro could benefit by climbing above the 200-day simple moving average at 0.8547. On the flip side, weak PMI survey figures are unlikely to prove significantly market-moving as the market is preparing for the all-important Jackson Hole Symposium.