Jackson Hole, Kroger Price Cuts, and UK Retail Sales Update

Investing.com — The upcoming Jackson Hole central bank symposium has emerged as the central focus for market participants, as recent economic data indicates that the Federal Reserve may lower interest rates in September. Retail sales in the U.K. saw an increase in July, while Kroger has pledged to reduce grocery prices again in its efforts to finalize a merger with rival supermarket Albertsons.

### 1. Anticipation Surrounds Jackson Hole

This week’s softer inflation data has put a potential interest rate cut by the Federal Reserve on the table for the first time in over four years at the September meeting, although the extent of the initial cut is still being debated.

Many analysts on Wall Street had previously called for an aggressive 50-basis-point cut following disappointing data from July. However, the stronger economic data released this week has raised optimism about the U.S. economy, making a more measured 25 basis point reduction seem more probable.

Next week, all eyes will be on Fed Chairman Jerome Powell at the symposium in Jackson Hole, where economists at UBS predict he will downplay the likelihood of a 50 basis point cut. “We expect Chair Powell will make the case for an orderly withdrawal of monetary policy restrictiveness,” they said in a note, suggesting that 25 basis point cuts would be preferred over a more aggressive approach.

UBS anticipates three 25 basis point cuts this year, occurring at the September, November, and December FOMC meetings, while noting that the Fed’s September meeting is expected to reflect a consensus on the restrictive nature of current policy amid slowing growth.

Since last July, the Federal Reserve has kept its benchmark overnight interest rate in the 5.25%-5.50% range after implementing a total of 525 basis points in hikes since 2022.

### 2. Futures Up; Wall Street on Track for Strong Weekly Gains

U.S. stock futures rose on Friday as Wall Street appears headed for a solid weekly performance amidst growing optimism over the resilience of the U.S. economy.

As of 03:50 ET, the futures for major indices were up, with one contract increasing by 34 points (0.1%), another climbing 8 points (0.2%), and a third rising by 70 points (0.4%).

The primary U.S. indices recorded significant gains on Thursday after stronger-than-expected retail sales data and a drop in weekly jobless claims suggested that earlier concerns about a recession may have been overstated.

This week, the broad-based index is projected to gain over 3%, while the tech-heavy index is likely to rise more than 5%, marking their largest weekly advances since November. The blue-chip index has increased by over 2% this week, representing its best performance to date in 2023.

### 3. Kroger Enhances Merger Proposal with Albertsons

Kroger has taken steps to improve its proposed $25 billion merger with Albertsons by announcing plans to cut grocery prices by $1 billion after the deal’s completion.

Initially proposed in October 2022, this merger could potentially create a grocery powerhouse with more than 4,000 stores. However, it has faced several antitrust lawsuits concerning raises in grocery prices, leading to a halt last month pending a decision from a Colorado District Court regarding a lawsuit that seeks to block the merger. The trial is scheduled to begin on September 30.

Kroger had previously committed to lowering grocery prices by $500 million at Albertsons locations.

### 4. U.K. Retail Sales Experience July Rebound

Retail sales in the U.K. rose in July, recovering from sluggish spending during a cooler, wetter June. Consumer resilience is providing the Bank of England with additional considerations regarding future interest rate cuts.

Official statistics indicate that sales volumes in July were up by 0.5% compared to the previous month and 1.4% year-on-year, representing a significant recovery from June’s 0.9% monthly drop and an annual decline of 0.3%.

The central bank made its first interest rate cut from a 16-year high earlier this month, though uncertainty surrounds its next move. Inflation returned to the 2% target in May and June, remaining slightly above that in July, while wage growth has outpaced inflation by the highest margin since mid-2021 during the second quarter.

Furthermore, consumer confidence reached its highest level in nearly three years last month, and the U.K. economy saw a growth rate of 0.6% in the second quarter, hinting at a cautious rebound from recession.

### 5. Crude Prices Set for Weekly Gains

Crude prices dipped lower on Friday but remained on track for weekly gains, attributed to signs of economic robustness in the U.S., the largest oil consumer in the world.

As of 03:50 ET, WTI futures dropped by 0.5% to $77.79 a barrel, while another major contract fell by 0.3% to $80.77. Both benchmarks are poised for gains exceeding 1% this week, marking the second consecutive week of positive movement, supported by relatively strong U.S. economic data and indications of easing inflation.

The robust U.S. retail sales numbers in July point to a resilient consumer, fostering positive expectations for fuel demand. Concurrently, concerns over potential Iranian hostilities against Israel are creating a risk premium in the oil sector.