Jackson Hole in focus, stocks up, USD drops
Equity markets have recouped some of the losses they endured earlier this week ahead of the Jackson Hole Symposium which starts today. Jerome Powell, the Fed chair, will deliver his speech tomorrow and traders will be listening out for clues as to whether the bank will lift rates by 50-basis points or 75-basis points in September? Patrick Harker, Fed member, said he is undecided on a 0.5% or a 0.75% hike. The central banker confirmed he is not in favour of hiking rates aggressively, only to bring them right back down. This suggests that he would prefer a more measured approach to tackling inflation, and therefore could be interpreted as a little less hawkish. The NASDAQ is the outperformer of the US indices, which is unusual seeing as bond yields are relatively high, the US 10-year yield is 3.08%. The fact yield is above 3% implies that bond traders are positioning themselves for more rate hikes, but we are not seeing a corresponding move in equities.
The US dollar was deep in the red this morning as traders banked profits from the recent bullish run. The preliminary reading of US GDP for the second quarter was -0.6%, fractionally beating the -0.7% forecast. It was an improvement on the advance reading of -0.9%. The growth data helped the dollar briefly pare earlier losses, but the selling pressure resumed, and now the US dollar index is down 0.15%. Even though the dollar is weaker, EUR/USD is firmly below parity as it is 0.9970. Worries about slowing growth and high gas prices are hurting the euro as it is down versus a host of currencies.
WTI and Brent crude are experiencing low volatility for a change. Oil hit a three-week high due to concerns that OPEC might cut production, but now the US have rejected Iran’s nuclear proposals, it seems less likely that OPEC will lower output. Despite the cooling in the oil market, WTI is still up over 4% on the week. The broad bullish sentiment in markets and the fall in the US dollar is helping gold, silver, and copper. Although gold and silver are enjoyed upward moves today, they have printed three-week lows during the week, so the medium-term trend is bearish.