Jackson Hole, Kroger price cuts, UK retail sales - what's moving markets

Investing.com -- Next week's Jackson Hole central bank symposium has now become the market's key focus as economic data points to the Federal Reserve cutting interest rates in September. U.K. retail sales rebounded in July, while Kroger has promised o lower grocery prices once more as it attempts to clinch merger with smaller supermarket rival Albertsons.

1. Jackson Hole looms large

Softer U.S. inflation data this week has put an interest rate cut by the Federal Reserve for the first time in more than four years at its next meeting in September firmly on the agenda, although there remains some doubt about the size of the initial reduction.

Many on Wall Street called for an aggressive 50-basis-point cut in the wake of the weak July nonfarm payrolls report at the start of the month, but this week’s strong retail sales data has boosted optimism over the U.S. economy, suggesting a reduction of a more restrained 25 basis points was more likely.

Attention next week is going to fall on Fed Chairman Jerome Powell at the annual central bank symposium in Jackson Hole, Wy., and UBS expects the Fed chief to downplay the prospect of a 50 basis point cut.

"We expect Chair Powell will lay out a case for an orderly withdrawal of monetary policy restrictiveness,” economists at UBS said, in a note, “and by orderly, we mean 25 bp rate cuts, rather than 50 bp."

"We expect three 25 bp rate cuts this year, one at each of the September, November and December FOMC meetings," the Swiss bank added, expecting that the Fed's September meeting will reflect consensus among voting members that fed policy was now restrictive amid slowing growth.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, after hiking its policy rate by 525 basis points since 2022.

2. Futures higher; Wall Street heading for strong weekly gains

U.S. stock futures edged higher Friday, with Wall Street heading for a winning week amid growing optimism over the underlying strength of the world’s largest economy.

By 03:50 ET (07:50 GMT), the Dow futures contract was 34 points, or 0.1%, higher, S&P 500 futures climbed 8 points, or 0.2%, and Nasdaq 100 futures rose by 70 points, or 0.4%.

The main Wall Street indices closed with strong gains Thursday after retail sales came in much stronger than expected, while weekly jobless claims fell - suggesting earlier recession fears were overplayed.

At the same time benign inflation numbers this week point to the Federal Reserve starting to cut interest rates at its next meeting in September.

As far as the week is concerned, the broad-based S&P 500 is on track for a gain of over 3% and the tech-heavy Nasdaq Composite more than 5%, which would be their biggest weekly gains since November. The blue chip Dow Jones Industrial Average has climbed more than 2% this week, which would also mark its best performance this year.

3. Kroger sweetens proposed Albertsons merger

Supermarket chain Kroger (NYSE:KR) has made its latest move to sweeten the proposed $25 billion merger with smaller rival Albertsons (NYSE:ACI), announcing plans to lower grocery prices by $1 billion after the deal’s completion.

The merger was first announced in October 2022, and was expected to create a grocery empire with more than 4,000 stores.

However, it has run into a series of antitrust lawsuits over concerns that it would push up grocery prices, and was halted last month pending a Colorado District Court ruling on a lawsuit filed to block the deal.

The trial is set to begin on Sept. 30.

Kroger had previously promised to lower grocery prices by $500 million at Albertsons locations.

4. UK retail sales rebounded in July

U.K. retail sales rose in July, rebounding after an unusually cool and wet June depressed spending, with consumer resilience giving the Bank of England more food for thought in terms of future interest rate cuts.

Retail sales volumes in July were 0.5% higher than a month before and 1.4% higher than in July 2023, the Office for National Statistics said.

This represented a sharp rebound from June’s drop of 0.9% on a monthly basis, an annual fall of 0.3%.

The Bank of England this month made a first cut to interest rates from their 16-year high, but what the central bank does next is uncertain.

Inflation was back at its 2% target in May and June, and only slightly above that in July, but wage growth exceeded inflation by the highest margin since mid-2021 in the second quarter of the year.

Additionally, consumer confidence rose to its highest in nearly three years last month and the U.K. economy grew by 0.6% in the second quarter of the year, continuing the country’s cautious recession rebound.

5. Crude on track for weekly gains

Crude prices edged lower Friday, but were on course for a positive week on signs of economic resilience in the U.S., the world's top oil consumer.

By 03:50 ET, the U.S. crude futures (WTI) dropped 0.5% to $77.79 a barrel, while the Brent contract fell 0.3% to $80.77 a barrel.

Both benchmarks are on track for gains of more than 1% this week, the second consecutive winning week, on the heels of relatively strong U.S. economic readings and signs of easing inflation in the country.

Retail sales grew more than expected in July, pointing to a resilient U.S. consumer and offering a positive outlook for fuel demand in the country.

Additionally, signs of cooling inflation furthered conviction that the Federal Reserve will cut interest rates in September.

Continued caution over a potential Iranian strike against Israel, likely ramping up tensions in this oil-rich area, has resulted in a risk premium remaining in the sector.

This article first appeared in Investing.com