Markets Rangebound Ahead of Jackson Hole

August 25, 2021
  • The U.S. 2-year auction yesterday saw very strong demand; Pelosi struck a deal with moderate Democrats that will allow the two infrastructure packages to move forward; Brazil reports mid-August IPCA inflation and July current account data
  • German August IFO business climate survey came in soft; Hungary hiked rates by 30 bp as expected to 1.50% and also started tapering
  • Reports suggest Prime Minister Suga will expand a state of emergency to eight more prefectures as virus numbers worsen; Chinese assets received a boost overnight from extra PBOC cash injections

The dollar is getting some traction after three straight down days. Still, most major currencies remain within recent trading ranges ahead of Jackson Hole. DXY continues to find support just below 93. The euro remains heavy near $1.1750, while sterling is having trouble trading above $1.3750. USD/JPY also remains heavy and has so far been unable to mount a challenge to the 110 area despite the risk-on backdrop this week. While we remain positive on the dollar, this period of consolidation is likely to persist ahead of Jackson Hole.


The U.S. 2-year auction yesterday saw very strong demand. Indirect bidders took 60.5% of the $60 bln offered vs. 52.8% previously, the most since 2009, while the bid-to-cover ratio was 2.65 vs. 2.47 previously. This sets the stage for the 5-year auction today and the 7-year auction tomorrow. The bond sales come even yields creep higher. The 10-year yield is trading near 1.30%, the highest since August 13. With 10-year breakeven rates around 2.32%, the real U.S. yield has risen to -1.02% and is near recent highs. If the U.S. data remain firm as we expect, allowing the Fed to move forward with tapering, then we see further upside for yields. Please see our Jackson Hole preview here. Durable goods orders (-0.3% m/m expected) will be reported.

House Speaker Pelosi struck a deal with moderate Democrats that will allow the two infrastructure packages to move forward. The compromise led to a 220-212 procedural vote yesterday afternoon that adopted the Senate’s $3.5 trln “human infrastructure” budget resolution. The Senate has already passed it 50-49 and so it goes the committees that will write the details of the framework into legislation. According to Representative Cuellar (D-TX), this sets up a later House vote on final passage of the $550 bln traditional infrastructure bill. The key to the deal was the House Rules Committee putting a September 27 deadline for the traditional infrastructure vote into writing. That, along with a commitment by Pelosi not to have the House vote on a “human infrastructure” bill that would not pass in the Senate, was enough to get the group of 10 centrist Democrats to support the plan.

Brazil reports mid-August IPCA inflation and July current account data. Inflation is expected at 9.24% y/y vs. 8.59% in mid-July. If so, it would be the highest since May 2016 and further above the 2.25-5.25% target range. Next COPOM meeting is September 22. After increasing the pace of tightening to 100 bp at the last meeting, COPOM promised another hike of the same magnitude at the next meeting, which would take the policy rate up to 6.25%. The most recent central bank survey shows that economists now expect the policy rate at 7.50% for end-2021 and end-2022, both up from 7.25% previously.


German August IFO business climate survey came in soft. The headline reading came in at 99.4 vs. 100.4 expected and a revised 100.7 (was 100.8) in July. The current assessment rose a full point to 101.4, but expectations fell a whopping 3.5 points from July and bodes ill for the economic outlook in Q4 and beyond. German September GfK consumer confidence will be reported Thursday, which is expected at -0.5 vs. -0.3 in August. France reports August business and manufacturing confidence Thursday and consumer confidence Friday. Similarly, Italy reports August manufacturing and consumer confidence Friday. All are expected to ease from July.

Hungary’s central bank (NBH) hiked rates by 30 bp as expected to 1.50% and also started tapering. The bank’s tightening cycle started in May with rates at 0.60%, establishing itself as the most hawkish in the region. It will also reduce its weekly QE purchases by HUF10 bln to HUF50 bln per week. This is consistent with the recent communication as inflation is expected to remain above the upper end of tolerance band (2-4%). We will get a better picture of extent of tightening in September when the next inflation report comes out, but for now there is no sign of wavering for the cycle. The forint remains one of the best performing currencies, but we suspect that the interest rate differential story is already fully priced in.


Reports suggest Prime Minister Suga will expand a state of emergency to eight more prefectures as virus numbers worsen. In total, the restrictions will cover about nearly 70% of the population and nearly80% of the economy. The measures will go into effect Friday and is scheduled to remain in place until September 12, but there are clear risks that they will have to be extended. Bank of Japan board member Nakamura warned that “The current spread of infections is more than expected at the time of the July policy meeting. Downward pressure on the economy is going to continue for the time being.” That said, the BOJ is on hold for now as markets await the next fiscal package from Suga. Next BOJ meeting is September 21-22 and no change is expected then.

Chinese assets received a boost overnight from extra PBOC cash injections. Officials reacted to higher interbank rates by offering RMB50 bln in liquidity through its 7-day repo facility, adding the largest amount of liquidity since February. This led to the first lower close for the overnight rate (-6 bp) after four consecutive sessions of increases, netting out a move from 1.72% last Wednesday to 2.21% today. Chinese equity indices ended the day on a positive with the Shanghai Comp up 0.7%.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction