Federal Reserve Chairman Jerome Powell will headline a host of Jackson Hole policymakers later in the week and the risks are he won’t meet investors’ hopes for a Dovish pivot on the Politics.
“We expect a reminder that more tightening is needed and that there is still a lot of progress to be made on inflation, but no explicit commitment to specific rate hike action for September,” Jan said. Nevruzi, analyst at NatWest Markets.
“For the markets, a bland delivery like that might be disappointing.”
The price of futures is fully set for another hike in September, the only question being whether it will be 50 or 75 basis points, while rates are seen 3.5%-3.75% from here. the end of the year.
A Archyde.com poll of economists predicts the Fed will hike rates by 50 basis points in September, with risks tilting towards a higher peak.
One exception to the tightening trend is China, where the central bank is expected to cut some key lending rates by 10 to 15 basis points on Monday.
Unease regarding the Chinese economy sent the yuan down to a three-month low last week, while putting pressure on equities across the region. Early Monday, MSCI’s broadest index of stocks in the Asia-Pacific region, excluding Japan, was down 0.4%.
South Korea’s KOSPI lost 1.1%, while Japan’s Nikkei fell 1.0%, although it received support from a recent yen reversal.
S&P 500 futures fell 0.5% and Nasdaq futures fell 0.6%. The S&P 500 repeatedly failed to breach its 200-day moving average around 4,320 and ended last week down 1.2%.
BofA’s latest survey of investors found most were still bearish, although 88% expect inflation to fall over time, the highest percentage since the financial crisis.
“This helps explain this month’s rotation into equities, technology and discretionary products, and out of defensive products,” said BofA strategist Michael Hartnett. “Compared to history, investors are still long defensive and short cyclicals.”
He remains a cautious bear given rising interest rates and recommends discouraging any further S&P rally above 4,328.
YIELDS SOAR
Equity valuations were not helped by a sharp rise in global bond yields last week. UK 10-year yields hit their highest level in five years following a shock inflation report, while Bund yields jumped following a steep rise in German producer prices.
Ten-year Treasury yields rose 14 basis points over the week and last stood at 2.99%, while the curve remained deeply inverted to reflect recession risk. [US/]
The general air of global uncertainty has tended to boost the US dollar, the most liquid of safe havens, sending it up 2.3% last week to 108.18 on a basket of currencies, its best performance since April 2020. [USD/]
“The USD may follow the week above 110.00 if August flash PMIs for major economies show further slowing in economic growth or contraction in activity,” said Joseph Capurso, head of international economy at CBA, referring to manufacturing sector surveys due Tuesday.
“We also expect Powell to deliver a hawkish message on inflation, in line with recent comments from other Fed officials, which will support the dollar.”
The dollar was up at 137.04 yen, following climbing 2.5% last week, while the euro struggled at $1.0030 following losing 2.2% last week.
Minutes from the European Central Bank’s latest monetary policy meeting are due out this week and are likely to be hawkish given that they decided to hike by 50 basis points.
The rising dollar was a setback for gold, which was stuck at $1,744 an ounce. [GOL/]
Oil prices were also under pressure due to concerns regarding global demand and the rising dollar. [O/R]
Brent lost $1.02 to $95.70, while US crude fell 99 cents to $89.78 a barrel.
