Ok, strap in, because this promises to be an interesting week.
August has proven to be the month that risk assets finally took notice of the exceptionally precarious geopolitical backdrop. Risk assets have reacted unfavorably to the combination of rising tensions on the Korean peninsula and the seemingly terminal decline of the Trump administration. As a reminder, Thursday and Friday marked the first time since Brexit that the S&P has fallen 1% and then declined again the next day.
Pyongyang ratcheted up the rhetoric over the weekend, warning that the U.S. is “pouring gasoline on fire” by going ahead with an annual war game in the South this week amid still-simmering tensions with the North.
Meanwhile, Trump is digging himself a hole and is now under siege from all directions with corporate executives beating a hasty retreat after last Tuesday’s improvised press conference and lawmakers on both sides of the aisle asking if the President is mentally fit to serve (that’s not hyperbole).
Steve Bannon’s exit helped calm jitters around the rumored resignation of Gary Cohn, but as noted earlier, now Steve Mnuchin is being called upon to resign. It goes without saying that if there are any indications whatsoever that either Cohn or Mnuchin are ready to throw in the towel, markets are subject to considerable risk (both men have, for now, indicated that they are going to stick around).
Politics and war aside, all eyes will be on Jackson Hole where Draghi’s highly anticipated speech comes on the heels of ECB minutes that flagged the risk of excessive FX appreciation. Here’s Barclays:
Investors will this week be tuning in to the speeches of central bank officials at the 2017 Jackson Hole Economic Symposium over 24-26 August. There have been reports that ECB President Mario Draghi is scheduled to speak, even though the Symposium’s agenda is typically released quite close to the event start. The Phillips Curve relationship might be a key discussion topic, considering that the subject was actively debated by Fed and ECB officials in policy meetings, as revealed by the latest FOMC and ECB minutes.
