At Jackson Hole, Chairman Powell clearly suggested maintaining the direction of interest rate hikes, and ECB President Lagarde depended on the data. The conclusions of the Federal Reserve and the ECB, which were struggling with the final rate hike, were divided.
Chairman Powell stated at the beginning and conclusion that “there is work left to be done in the Fed,” and emphasized the need for current interest rate hikes. However, it was also stated that interest rate hikes will be carried out carefully, and it is impossible to confirm with certainty the interest rate hike in September. Chairman Powell once again clearly stated that the price target is core PCE, and explained the three elements (goods, rent, and others). Core PCE fell to 4.3% from its peak of 5.4% last year. Although a peak out of inflation was confirmed, it was far from the target of 2%, and goods fell, but rents were declining due to interest rate sensitivity. Wages were the other main cause, and a weak labor market and an economy below the potential growth rate were necessary. They are stuck to the 2% inflation target, and interest rate cuts are unlikely until the core PCE 2% is visible.
Meanwhile, ECB President Lagarde depends on data on monetary policy, but there seems to be a high possibility that interest rate hikes will be suspended. Inflationary pressure is weak in the EU...

The day before yesterday, the Canadian monetary policy meeting, which predicts interest rate hikes in the US, decided to leave it unchanged. This is the conclusion by comparing the signal of a settlement of excessive demand, the lag in monetary policy, and the strength of underlying inflation. The Central Bank of Canada before COVID-19 did not move ahead of the Fed. However, in the interest rate hike curve from the spring of 2022 onwards, there was a noticeable movement that took the lead on the Fed. There was a proactive move, such as a drastic interest rate hike of 1%, stopping interest rate hikes in March, and raising interest rates again in June.
It is self-evident that the economies of Canada and the United States, where the real economy is connected by the USMCA, are linked. There seems to be a high possibility that Canada's policy interest rate will be at the terminal rate (5%) due to the suspension of interest rate hikes this time. Even in the US, where demand is strong, inflation is clearly peaking out. The US will also decide the terminal rate at 5.5-5.75% at the FOMC on November 1, a little later.
For Chairman Powell, the FOMC that marks a turning point is November, not September. Two years ago, we acknowledged that inflation was not temporary, and last year we decided to slow down the pace of interest rate hikes. The final decision to raise interest rates will be made this year. The pace of interest rate hikes last year...

The US employment statistics (August) confirm the easing of supply and demand in the labor market. The unemployment rate was 3.8%, up from the previous month (3.5%). However, it is within the range (3.4-3.8%) since breaking 4% in 2022. A year ago, it was 3.7%. The number of people employed in the non-farm sector is 187 thousand. This is also a mediocre number. With a workforce of 167 million people, that's not dramatic. The average hourly wage increased by 4.3%, and the average weekly wage increased by 4%, as expected.
What has changed is the labor participation rate and the number of unemployed people. The labor participation rate was 62.8%, which was higher and more significant than a year ago (62.3%) than the previous month (62.6%). Students who have stopped paying student loans may have filled the hole of early retirement for the elderly by starting to work. The number of unemployed people was 6.35 million, which is higher than the previous month (5.84 million) than a year ago (6.02 million). Clearly, the fact that there were over 6 million unemployed people is evidence of an easing in labor supply and demand.
It is important to compare this figure with the number of job offers in the JOLTS recruitment labor transfer survey conducted by the Bureau of Labor Statistics, which is a leading indicator. The number of job offers in July was 50 more than the previous month...

After Labor Day, summer vacation is over, and Western investors return to the market. Compared to before summer vacation, it has become quite clear that the Fed's interest rate hike is one more time, and the terminal rate is 5.5-5.75%. Also, even if the ECB raises interest rates in September, there is a growing possibility that it will be the last rate hike. Even if interest rate hikes in Europe and the US end this year, interest rate cuts next year are unlikely. In the future, the market will change from discussions about whether interest rates will be raised or not to discussions based on the assumption of interest rates that do not move.

NVIDIA's stock price evolved after financial results were announced. The entire market also plummeted. Apparently QT (quantitative tightening), which began in June last year, has begun to take effect. The background is that government deposits, which had continued to decline due to the debt ceiling issue, have been revived, and absorption from private sector deposits has begun. Even with the same money, government deposits do not lend themselves to loans, and private sector deposits are the source of loans. In short, the presence or absence of credit leverage is different. If QT starts to work, the rise will be suppressed, and it is inevitable that the stock market as a whole will become heavy.
Jackson Hole schedule: ① Fed Chairman Powell's speech (structural transformation of the world economy) at 8:05 a.m. on the 25th (11:05 p.m. today), ② ECB President Lagarde's speech (Europe and the world economy) at 1:00 p.m. on the 25th (Tokyo tomorrow 26th at 4:00 a.m.), ③ Bank of Japan President Ueda Panel Debate (inflection point of globalization) at 10:25 a.m. on the 26th (1:25 a.m. on Tokyo 27th)

Yesterday's PMI (Purchasing Managers Index) for the US, EU (Germany+France), and the UK were all weak, which made me recognize that economic sacrifices will be attached to overcoming inflation. In the EU region, not only manufacturing, but also service industries are not good. Germany's exports to China fell sharply to ▲ 6.2% compared to the previous year due to the division between the US and China, and the southern European tourism industry, which is the main force of the latter, has also exceeded its limits due to overtourism and labor shortages. Therefore, Germany has weak numbers for the first time in 3 years, and Buddha also has weak numbers for the first time in 2 and a half years.
Executive Director Lane, the ECB's chief economist and second only to President Lagarde, stated that “even if demand is artificially lowered, it is not drastic, and it is fine to the extent that it falls below supply,” and it is predicted that interest rates will not be raised in September. The UK is also at a low level for the first time in two and a half years, which foreshadows negative growth in the 3rd quarter. The US is also weak for the first time in six months.
It is thought that the sharp rise in US bonds yesterday was due to a movement to consolidate positions ahead of Jackson Hole. There was no choice but to short cover long-term US bonds, which had been sold due to the strength of the US economy, considering that they had already been sold quite a bit, that interest rate hikes were in the final phase, and that real interest rates were positive...

The Richmond Fed President brought up a scenario for re-acceleration of the US economy on the 22nd. Although they also warned that “if the inflation rate remains high and demand does not give a signal, it will be necessary to tighten monetary policy,” with regard to the US bond market, they expressed the view that “recent movements in bond yields are not a sign of inappropriate market tightening, and there is a high possibility that they are a response to strong economic indicators.” This is reasonable based on recent strong economic indicators and the Atlanta Fed's high GDP now (5.8%). The Fed has probably begun to see even a recession, let alone the Nolan Deink scenario, as suspicious. Currently, it seems that there is no choice but to temporarily eliminate the interest rate cut scenario. Nevertheless, the market consensus for interest rate hikes is one more time.
That gap will probably be adjusted by making the high interest rate maintenance period reasonably long. 2-year bonds have been added to 5%. If you take into account the fact that the terminal rate of FF interest rates is 5.5-5.75%, it is difficult to achieve the 2% inflation target, and that the period for maintaining high interest rates will be quite long, it is unavoidable that it will be sold up to around 5.5%. There is no choice but to search for long-term interest rate levels adapted to new short-term debt levels...

Main trends last week (US 7/28 to 8/3)
In the US stock market up to 8/3, the three major indices all declined compared to last weekend. The Dow Jones Industrial Average and the S&P 500 fell for the first time in 4 weeks, and the Nasdaq Composite Index fell for the first time in 2 weeks. On the evening of the 1st, rating giant Fitch lowered the rating of US bonds by 1 step from the top “triple A” to “double A plus,” concerns about upward pressure on long-term interest rates associated with the increase in government bonds by the US Treasury suddenly attracted attention, and risk-off movements took precedence. The 10-year bond yield, which is an indicator of long-term interest rates, temporarily reached a high level in the first half of the 4.1% range for the first time in about 9 months. Prior to the downgrade of US bonds by Fitch, the US June CPI (consumer price index) and June PCE (personal consumption expenditure) all fell below market expectations, the inflation slowdown trend became even clearer, and observations of the “soft landing theory” of the US economy spread. It seems that market sentiment completely changed due to the US debt downgrade shock. While the major sectors of the S&P 500 were completely depreciating compared to last weekend, the public service sector, which is sensitive to rising interest rates, dropped to the top with a price drop of ▲3.52% compared to the previous weekend, the IT sector was ▲2.81 percent, the general consumer goods sector was ▲2.64...