Lagarde: much ado about a July interview

LAGARDE: MUCH ADO ABOUT A JULY INTERVIEW (1128 GMT)

At first, it seemed Christine Lagarde's interview in Madame Le Figaro wouldn't yield much noise.

After all, the chat with the French women's magazine took place in July and Lagarde's own teaser on Twitter wasn't exactly irresistible click-bait for ECB watchers.

"I firmly believe in the virtue of diversity – not only of gender but also of thought and skills – to understand the complexity of today’s challenges", she wrote on the social media platform, adding a link https://www.ecb.europa.eu/press/inter/date/2022/html/ecb.in220825~7c5db6d1b3.en.html to the interview on the ECB's website.

There was little to extract in terms of hard news and Reuters went with just a few paragraphs on the central bank's acknowledgement that climate change is having a clear impact on inflation. That story can be found here https://www.reuters.com/markets/rates-bonds/ecbs-lagarde-climate-change-has-clear-impact-inflation-2022-08-25/.

But with inflation running at a record pace of 8.9% in the euro zone, the euro trading below parity and a recession expected this winter, Lagarde's comments about personal and general topics outside her core mandate of price stability clearly irritated some users.

Even so, putting aside the flurry of Twitter users asking (not always politely) the ECB's head to focus solely on inflation, some ECB watchers found at least one quote very interesting.

Frederik Ducrozet, at Pictet, pointed out this one: "We can no longer rely exclusively on the projections provided by our models – they have repeatedly had to be revised upwards over these past two years. There are things that the models don’t capture."

Another ECB watcher, Antoine Bouvet at ING, said it was difficult what to make of it.

"It is tempting to read a hawkish, backward-looking signal there (Fed-style) but reading the whole interview it is clear the aim was to avoid talking about policy".

(Julien Ponthus)

FED: HOW FAST FROM RAISING TO CUTTING RATES? (0946 GMT)

Will the Fed cut rates in 2023? And then, how long will the Fed hold after reaching terminal levels?

BofA analysts forecast the Fed will reduce rates by September 2023 - six months after reaching terminal rate.

They look at the past to see how quickly the Fed has moved from hikes to cuts in prior cycles while providing indications about the potential economic backdrop. (see table below)

"In the 1995 cycle, the Fed held rates at the terminal for a little over five months and, in the '80s, when policy setting was more volatile, the Fed pivoted even more quickly," they say. They recall that, barring the early '80s, "the Fed only pivoted to cuts when YoY core PCE was at or below 2%."

"These instances were also generally consistent with a decline in inflation over the period the Fed stayed on hold except for 2000," they argue.

"Post-1984 and except for the 2018 cycle, payrolls growth generally cooled over the hold period before the Fed delivered rate cuts."

(Stefano Rebaudo)

STOXX 600 ON TRACK FOR BEST DAY IN TWO WEEKS(0808 GMT)

European shares are posting gains this morning, as several positive earnings lift the index even amid jitters ahead of a day of key signals from central banks.

The pan-European STOXX 600 index is 0.8% up, which if it holds will be its biggest gain since August 10, with retail stocks the only sector in the red, down 0.5%

Insurance, banks and basic resources are doing the best, all up about 0.8%.

"More stimulus from Beijing to boost the faltering Chinese economy has probably helped," said Neil Wilson, chief market analyst at Markets.com in a note.

"But really we are just knocking around levels traded through August and it looks like markets have found near-term bottoms until Jackson Hole shakes out."

FTSE-listed Harbour Energy is at the top of the STOXX 600, after posting results and upping its share buyback.

Elekta is at the bottom, with shares down 7.6% after first quarter results.

EUROPEAN STOCKS SIGNAL POSITIVE START (0633 GMT)

European futures contracts are up between 0.7%-0.8%, meaning screens look set for a second day flashing green.

Even so, tension remains in the air. Important signals over future rate hikes will come from the Fed's Powell who will speak at Jackson Hole gathering on Friday. Later today, the ECB will also release the minutes from its July meeting at which it hiked rates for the first time since 2011.

On the company front, there were some positive signals.

Norwegian Air Shuttle posted a second-quarter profit on Thursday after a loss in the first three months of 2022.

South African drinks maker Distell, set to be taken over by Dutch beverage company Heineken, said on Thursday its full-year profit rose by 36.7%, as consumers bought more wine, ciders and spirits despite cost of living pressures .

Novartis will spin off Sandoz and list the biosimilars unit on the Swiss stock exchange.

CAUTIOUS UNDERTONE, WAITING FOR JACKSON HOLE: (0613 GMT)

While Asian stocks managed to make modest gains on Thursday, there is a heavy air of caution among investors ahead of what may prove a pivotal central bank gathering.

Markets are bracing for the U.S. central bank to double down on its commitment to crushing inflation as Federal Reserve Chair Jerome Powell is set to give a speech at its annual summit in Jackson Hole, Wyoming.

Europe is even messier.

The euro zone faces the double whammy of deteriorating growth expectations, while the risk of inflation rising further is increasing.

Market attention is on the minutes due on Thursday from the European Central Bank's last policy meeting that are likely to sound hawkish.

The ECB hiked interest rates by a bigger than expected 50 basis points last month to zero percent and economists expect no letup by the central bank as it seeks to stamp out runaway inflation.

Gross domestic product data in Germany - expected to show zero growth in the June quarter - along with the IFO business climate index will give further clues on the state of affairs of Europe's largest economy.

Meanwhile, analysts are turning bearish on equity markets, after a brief respite seen in the last two months.

Fears of energy shortages, anaemic growth and soaring inflation are likely to stall European shares, a Reuters poll found.

The euro,, which is flirting with a 20-year low of $0.99005, has been battered by growth concerns, with an energy crisis adding to the gloomy outlook.

German and British bond yields have surged recently as investors fret about sky rocketing inflation that shows little signs of easing.

In Asia, rate hikes remained the big worry.

South Korea's central bank became the latest to raise its key interest rate by 25 basis points and signalled the need for further hikes to curb inflation perched at near 24-year highs.

Key developments that could influence markets on Thursday:

Economic data: German Q2 GDP, German IFO business climate index, French business climate

ECB publishes account of July policy meeting

Jackson Hole symposium kicks off (ends August 27)