Jackson Hole Eve, US data, Chinese ADRs rally, Bitcoin above $21k

‘Twas the night before Jackson Hole, when all through the house

not a creature was trading, not even a mouse

Some stocks were rallying but with cautious care

In hopes a dovish hint from Fed Powell would be there’

US stocks are rising ahead of Fed Chair Powell’s Jackson hole speech as investor worries ease that the Fed will make a policy mistake with their battle with inflation. Everyone remembers Powell’s mistake about sticking to the inflation is transitory at last year’s Jackson Hole Symposium, so he will be extra motivated to make sure his message is clear and aggressive about fighting inflation. ​ The latest Fed speak supports the hawkish narrative after both the Fed’s Bostick reminds us that strong economic data could tip the Fed to deliver another 75-basis point rate increase and after Fed’s George noted they have more room to go with raising rates. The Fed is ready to be locked in tightening mode until inflation eases and the latest inflation pretty much confirms that won’t happen until next year. The labor market is still too strong and that will continue to feed into rising wages and drive home the point that the Fed can remain aggressive with raising rates.

US data

This morning’s economic data is the perfect appetizer for Friday’s hawkish Fed Chair Powell speech. It is not surprising to see jobless claims fall again and for a slight revision higher with both headline GDP reading and personal consumption. ​ Two consecutive quarters of contraction should be followed by a robust rebound in the third quarter. ​ Given how strong the labor market remains, wage pressures will not be easing anytime soon and that should keep inflation very sticky. The second look at Q2 GDP was revised slightly higher, while personal consumption confirms the spending remained healthy. ​ The Core PCE reading stayed steady at 4.4% and that should support the Fed remaining aggressive with tightening going forward.

There is still a chance that this unbalanced economy will get a soft landing and that should prevent stocks from seeing severe downward pressure. ​

Chinese ADRs

Chinese ADRs popped higher after reports that the US and China are nearing a deal that would appease American accounting regulators. A couple of hundred US-listed Chinese companies were at risk of getting the boot from US stock exchanges and that could have been disastrous for both the US and China. An official confirmation is expected as both countries are motivated to avoid any unnecessary economic hardships. ​

Bitcoin

Bitcoin is consolidating ahead of Jackson Hole but still remains comfortably above the $20,000 level. ​ The correlation with Bitcoin and equities is not holding up today, but that is mainly because the move higher in equities is a story about Chinese ADRs and not a broader move for tech stocks. ​ ​

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