Caution ahead of Jackson Hole

We’re seeing a little more risk aversion in the markets on Thursday, with Jerome Powell’s Jackson Hole appearance tomorrow continuing to be the main thing on investors’ minds.

Some weeks, it can get very repetitive writing about the markets. You hope something interesting will steal the show but you know there’s a very strong chance that markets are simply positioning for a particular event and will likely continue to do so. And then, quite often, the event in question doesn’t live up to expectations and you’re back to square one.

This week very much has the feel of one of those. Powell may say something significant during his appearance tomorrow which sends shockwaves through the markets. He may suggest the Fed is committed to tapering despite the softness that’s appeared in the data and the spread of the delta variant across the US that threatens to weigh on economic activity in the coming months.

He may also suggest that recent events have necessitated more patience on tapering and that a decision on that this year now seems unlikely. Both would get very different reactions in the markets. But they would also be out of character for the Fed Chairman and while he may lean more towards the dovish side of the argument on this, policymakers since the last meeting have erred more on the other side.

So the reality is that Powell will say as little as possible, buy the committee a few more weeks and then say more at the September meeting. A few weeks ago, that wouldn’t have been necessary as it seemed that most were starting to sing from the same hymn sheet which would have given Powell the opportunity to lay the groundwork for an announcement tomorrow.

But a lot can change in a few weeks and it arguably has. So caution is likely to remain in the markets ahead of Powell’s appearance. And if he does say something significant – and surprising – tomorrow, it could be a rollercoaster ride as we close out the week. Or he could leave us all hanging a few more weeks which may see caution remain a key theme.

Bullard weighs on stocks, lifts dollar after US data slightly disappoints

There wasn’t much to take away from the US data ahead of the open, with jobless claims, GDP and personal consumption expenditure prices all slightly disappointing which weighed a little on the dollar. That minor blip for the greenback was temporary though as Fed uber hawk, James Bullard, rode in and turned its fortunes around.

Unsurprisingly, Bullard continues to back a taper and reaffirmed shortly after the data that he wants it completed by the end of Q1 next year. He also claimed that there’s a lot of inflation, quite a bit higher than expected and that the Fed is coalescing around a taper plan. It is worth bearing in mind that Bullard always holds among the more hawkish views and he has no vote this year. Still, the dollar spiked and US futures pulled back on the comments.

ECB minutes hold few surprises, central bank in it for the long haul

The ECB meeting accounts didn’t really contain anything surprising despite the choppiness we saw in the euro in the aftermath of them. The central bank’s new guidance on interest rates had the majority backing, though it certainly wasn’t unanimous with some strongly opposing.

Interestingly they did state that the guidance didn’t necessarily imply lower interest rates for longer, although that’s certainly how the markets perceive it given the central bank’s miserable record on inflation. The debate is going to continue to be fierce on the committee going forward, especially around the need for prolonged pandemic assistance.

BoK hikes as concerns over financial stability and debt grow

The Bank of Korea kicked off its tightening cycle earlier today, beating others including the Fed and RBNZ to the punch. While restrictions are still in place, the country is performing well, inflation is above target and, more worryingly, financial stability and household debt concerns have forced the hand of the central bank.

More rate hikes are likely to follow, with one more potentially pencilled in at one of the final two policy meetings this year, as the central bank looks to get on top of the imbalances in the country.

Bitcoin correction underway?

Bitcoin has looked poised for a corrective move recently and we may be seeing one unfold. It has edged lower again today and found some support just above USD 46,000. A break below here could signal a broader correction is on the cards, with the next test coming around USD44,000, where it repeatedly found support in mid-August.

This would be a healthy correction for something that rallied more than 70% between 20 July and 23 August. And in reality, a deeper correction below USD 44,000 would be no bad thing. Certainly not a bearish signal in the longer term, with support for cryptos seemingly just growing at the moment.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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