US Close: Stocks fall from record highs, Kabul in focus, 3 Fed hawks speak

US stocks fell from record highs as investors brace for Fed Chair Powell’s shimmy to tapering asset purchases.  A second look at Q2 GDP and PCE figures provide no new insights and jobless claims continue to trend lower.  Today, the focus was primarily on three hawkish Fed speakers and events out of Kabul.

On the eve of when Fed Chair Powell is expected to crawl towards the hawkish side of the FOMC board, the attention of financial markets was drawn to two explosions near Kabul airport.  Four US marines and several Afghans were killed as the US tries to evacuate the remaining Americans and allies in Afghanistan.  The developments in Afghanistan won’t have a significant impact on Wall Street, but the blasts did drag stocks down and provide a small boost for gold.

Pentagon press secretary John Kirby tweeted “We can confirm that the explosion at the Abbey Gate was the result of a complex attack that resulted in a number of US & civilian casualties. We can also confirm at least one other explosion at or near the Baron Hotel, a short distance from Abbey Gate.”

The splinter group ISIS-K is suspected to be behind the attacks and fear of more terrorist acts will complicate the US efforts to evacuate Americans and allies by the end of the month.

Jackson Hole expectations

The way Treasury yields have been rising, Wall Street is expecting Powell to imply that tapering in September is likely, but refrain on giving any other hints with the timing  and speed of the actual taper speed.  Powell wants to avoid a communication mistake like he had in December 2018 when he said tightening would be on autopilot.   Powell could show more anxiety over inflation and that might help trigger a quicker removal of accommodation.

Fed Speak

Today’s wrath of Fed speak came mostly from the hawks as Kaplan supports the announcement of tapering in September, Bullard wants to get going with taper, and George said it is time to begin adjusting Fed accommodation.  The hawkish comments however only helped marginally push Treasury yields higher.  For the Treasury curve to steepen a lot quicker, Wall Street will need to hear the doves pivot towards tapering.

FX

The dollar got a boost from another round of hawkish comments from Fed members George and Bullard.  Bullard reiterated his call to get tapering going, but his comment on getting more inflation than expected and ending tapering by the first quarter stole the spotlight.

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