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How deep is a cut? By Reuters

(Reuters) – Central bank chiefs gather in Jackson Hole for their annual retreat, U.S. Democrats choose their presidential nominee and energy markets ricochet on the confluence of Middle East and Russia-Ukraine tensions, while global PMIs are due .

Here’s your guide to the financial markets next week from Ira Iosebashvili and Lewis Krauskopf in New York, Naomi Rovnick and Nina Chestney in London and Kevin Buckland in Tokyo.

1/ JACKSON HOLE

Central bankers from around the world are gathering in Jackson Hole, Wyoming, on Thursday for the Fed’s annual conference to chart the way forward for monetary policy. This year it’s labor markets – a change from last year’s inflation theme.

US Fed chief Jerome Powell has a chance to fine-tune his message ahead of September’s monetary policy meeting. Most market participants believe the Fed will start cutting interest rates next month after months of keeping them high to curb inflation.

How big the world’s top central bank will go, and how deeply it will eventually cut, remain open questions: A series of alarming recent economic data – including unemployment figures – have pushed investors to step up bets on a down 50 basis points in September.

2/ MIXED IMAGE

The global growth outlook is another piece of the puzzle. Markets are feverish and scrambling to gauge the economic outlook as business activity eases but inflation remains above central bank target levels.

Purchasing Managers’ Indexes provide a real-time snapshot of economic activity and – most of them released on Thursday – will provide the next set of indicators. July PMIs suggested an economic slowdown combined with lingering inflation, showing why central banks are in trouble.

U.S. manufacturing activity weakened and German numbers were surprisingly tough, indicating that Europe’s economic strength is contracting. But producer prices in advanced economies hit an 18-month high.

Inflation will dictate the pace and depth of future rate cuts. A repeat of July’s tough PMI trends could mean monetary easing is slower than markets would like.

3/ ANGRY ABOUT PRICES

The Bank of Japan’s sudden shift from uber-dove to ultra-hawk has put it on the line for lawmakers after it peppered its surprise interest rate hike at the end of July with hints of more.

One unexpected result was the steepest loss in Japanese stocks since the infamous Black Monday of 1987 amid a destabilizing rise in the yen against the dollar.

Policymakers preparing to debate BOJ Governor Kazuo Ueda and his colleagues on August 23 will do well to remember that some of their most senior figures have backed the central bank to help reverse the exceptional weakness of yen in the run-up to the move.

Recent macroeconomic indicators have at least been on the BOJ’s side, showing a stronger-than-expected return to growth on the back of a recovery in consumption.

A potentially bigger test comes on the day of the special parliamentary session, with the release of the latest consumer price figures.

4/ DEMOCRATS ON DISPLAY

The US presidential race is heating up again, with Democrats looking to generate new momentum for Vice President Kamala Harris’ candidacy at the party’s convention in Chicago.

Since her late entry into the race after President Joe Biden withdrew, Harris has galvanized Democrats and erased Republican nominee Donald Trump’s lead in some opinion polls, outperforming Trump in some betting markets ahead of the Nov. 5 vote .

The four-day convention begins Monday, with a number of high-profile Democrats expected to deliver speeches aimed at rallying support for Harris.

The race is tight, and investors are hoping to learn more about her policy positions.

Harris was at pains to emphasize that he would never interfere with the Fed’s independence — a view that contrasts sharply with that of the Republican nominee and former president, who said presidents should have a say in Fed decisions.

5/ TENSIONS

A confluence of risk factors has pushed and pulled global energy markets in recent days, and there’s little sense that it will abate. Concerns that the conflict is spreading in the Middle East and the threat to supplies from the region have pushed international crude oil prices above $80 a barrel.

At the same time, concerns about the strength of demand, particularly in China, are somewhat limiting oil’s gains.

© Reuters. U.S. Federal Reserve Chairman Jerome Powell arrives at a news conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024. REUTERS/Elizabeth Frantz/File Photo

Meanwhile, wholesale gas prices in Europe were volatile, with the specter of disruptions to Russian gas supplies on a transit route through Ukraine heightening concerns for the Middle East.

Markets are concerned that heavy fighting near the Russian city of Sudzha, where Russian gas enters Ukraine, could bring transit flows through the war-torn nation to an abrupt halt before a five-year deal with Gazprom expires (MCX: ) from Russia.

(Graphics by Pasit Kongkunakornkul, Sumanta Sen, Vineet Sachdev; Compiled by Karin Strohecker; Editing by Jan Harvey)

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