What To Expect From Jerome Powell At Jackson Hole

Okay, very good morning to you. It is Friday the 27th of August, and of course the wait is almost over because at 3 o'clock London time we're going to hear from Jerome Powell on his eagerly anticipated speech at Jackson Hole, with of course focus on tapering. But before we talk about Powell, let's just have a quick scan over the markets. At the moment we had a slightly lower close on Wall Street with losses broadly of around 0.6% across the three major indices. But this morning, things looking a little bit more positive in US futures. Both the NASDAQ and S&P a little bit higher. The DAX very quiet, down just a touch, 18 ticks. In the currency market, the dollar index actually has been tracking a little lower in overnight trade, hence some light support, up 10 pips both in EURUSD and cable in the top left. Gold also up about $10, just breaking out above what was the high that was seen yesterday afternoon's trade. I'm trading at 1806 at the moment. And then WTI crude also seeing some decent gains as Europe has come into the market early this morning. And that comes after people are tracking an expected strong hurricane to hit the Gulf of Mexico, which is causing some evacuations of oil platforms in that location. And so the rebound in oil continues. But let's get straight to it and let's talk about the main man, Jay Powell, and what can we expect from today. Well, first off, what is the schedule? Because ahead of Powell, there are a couple of speakers. So you've got Bostic at 12:30, Harker 1:15, Mester at 2 o'clock. The main speech from Jerome Powell on the economic outlook in Jackson Hole is at 3 PM London time. And then Fed's Bullard speaks after at 4:30. So I guess what are we expecting here? Well, most investors do not expect Powell to announce that the Fed will begin tapering of their $120 billion worth of monthly bond buys. That's probably not going to come at least until the September meeting when they have the next Summary of Economic Projections released at that FOMC gathering. But some are Central bank officials, of course, yesterday were making some very hawkish noises. So just to recap, Kaplan said he favored an announcement at the central bank September meeting to begin tapering bond buying and implementing it in October or shortly after. Bullard called for a start in the fall, finishing by the end of the first quarter of 2022, while Esther George urged an earlier move. Beginning this year. Note though that all three of those people are quite outstanding hawks on that scale, and all three are non-voting members. But certainly just keeping it fresh in mind then of the idea that the timeline for, for tapering is in their mind sooner rather than later. But therein I think lies a potential read on how the market might react today, because And of course, there is a chance that Powell really says not a great deal at all on tapering. And if that were to happen in the context of what we've just said, then certainly you'd likely see some immediate weakness of the dollar, a drop in US yields. And then from an equity perspective, probably the most likely outcome would be we would rally going into the weekend. But I would say my overall kind of take really is that I think that he will be, um, you know, Powell is a, is a slick operator these days, and I think he'll just say enough to set the scene then for the more formal taper timeline to be unveiled in September at that meeting. When we get to that meeting, then obviously comes the details. When is it going to start? And also, how quickly are they going to wind down or taper in each subsequent meeting then going forward? Is it going to be $15 billion? Is it going to be more or less of that figure will be the next determining factor of how markets will then subsequently start to react. So actually, I'm afraid to say, I will— this event might well be or might not live up to the hype. And that's because I think he might just give a very controlled, very measured speech that really just kicks the can a little bit further. We wait a few more weeks and we get this taper detail coming in September. However, what I was going to say is that I will cover this speech live. So if you're not subscribed to the channel and you're watching this video, make sure you hit that subscribe button, hit the bell icon, and you'll be notified as soon as I go live to cover that speech in full. I'll plan to come on about 15-20 minutes before he, he begins. So around kind of 2:45, uh, time, London time. Otherwise, elsewhere, what else is going on? Because I'll go into Powell obviously in a lot more detail later. Well, a few other things. For one, this is something we mentioned earlier where Janet Yellen had given her backing towards a reappointment of Jerome Powell. Now the latest is that advisors to Joe Biden are considering Powell for a second term, according to people familiar with the matter. And of course, as I said at the time, that idea of continuity is quite a powerful one as far as how markets generally behave around the points of transition of any Fed chair change. So him staying in place would probably be perceived as a, as a positive thing, if anything. Otherwise, obviously really terrible scenes being seen at the moment in Afghanistan, which I'm sure you are aware Two explosions outside the Kabul International Airport killed at least 60 Afghans along with 12 US servicemen and a dozen more people wounded. And this less than a week after that commencement of the US force withdrawal out of that country. Biden did address the nation last night. He said he took full responsibility of all the, the what has happened of late, but he He said he stood firm on his plans to withdraw American forces by the end of the month. So he hasn't moved that timeline as yet. Even before this event unfolded, the chaotic scenes we've had in Kabul over the course of the last week has dented his approval ratings. The president for the first time slipped underwater in the RealClearPolitics average of public polling. So that's kind of like the poll of polls. With 49% of Americans disapproving of his jobs performance compared to 47% who approve. So yesterday some people were pinning a little bit of the equity weakness on the Kabul situation. Not sure I really buy into that, to be quite honest, because I mean, just look where the equity market is trading at the moment. I mean, it's already reversed that move well before I'm delivering this briefing. So I find it hard to think that that was catalyst. Overall, if you look at the NASDAQ, we've traded a range, so I don't really see any more than that, to be quite honest. And if that downside yesterday was a breach of a more nearer, shorter-term, tighter range— and all of this, of course, coming in context of very quiet market conditions ahead of Powell. So yeah, I guess the knock-on implications here are less favorability for Biden makes things like the passage approval of the fiscal infrastructure The budget, $3.5 trillion bill, the looming debt ceiling issue, this all coming ahead of the midterms as well, the threat of loss of control of Congress, um, and subsequent impact that can have on policymaking and then disruption to what can be implemented for the economy. Sure, there's many dominoes that could fall, but I wouldn't read too much into this being contributing factor to overall negative equity performance. Performance. And definitely in the context of today, Powell will supersede that in the short term, intraday, for sure. Other things to be aware of: we did have overnight the front page commentary in the China Securities Journal. So effectively, this is the mouthpiece of the, of the state. They said, their analysts, that there could be an increase in credit supply soon, another reduction in the reserve requirement ratio, the RRR, following July's surprise cut. Um, the PBOC Governor Yi Gang earlier this week, to give a bit of context, pledged to boost credit support to the economy and improve efforts to bring down real lending rates for businesses. So this is just kind of the latest follow-up to kind of reinsure the market and what has seen a lot of destabilization, of course, with the crackdown that China has been commencing over many different areas in their economy. Um, so Chinese equities were actually up modestly around 0.5% in mainland and in Hong Kong in overnight trade. This does come, of course, with Chinese data further kind of, I guess, ratifying the need for this type of commentary and rhetoric coming out of the central bank because their economic data continues to show moderation. Profit growth at China's industrial firms easing again in July as floods and virus outbreaks in some part of the country's curbed output while raw material prices rose. Industrial profits year-on-year in July were 16.4%, a slowdown from 20% in the prior reading. The other thing, and what's keeping energy markets a little bit buoyant this morning, um, you might have seen me tweeting about this last night, and that's Tropical Depression 9 is the name, is forecast to approach the northern Gulf Coast at or near major hurricane intensity on Sunday. And here you can see This is where the current weather system is at the moment, and this is the projected path on Sunday night to hit, um, landfall in the Louisiana-type area. And a few things to be aware of here, and the reports in the NHC suggest there's an increasing risk of life-threatening storm surge, damaging hurricane-force winds, and heavy rainfall Sunday and Monday, especially along the coast of Louisiana. So far, BP has reportedly evacuated 4 Gulf of Mexico oil platforms and are shutting production, while Exxon's Baton Rouge refinery, which has capacity of around 502,000 barrels per day, began severe weather preparations ahead of that hurricane threat as well. So worth just keeping that in mind, not just for the general impact— this is happening as traders are trying to position accordingly— but also for news flow over the weekend to see whether or not that impacts to the degree of which they're suggesting. Remember then, when electronic markets on Globex reopen on Sunday night, we can determine then, then if oil prices remain bid on pricing in of quite a destabilizing Gulf of Mexico hurricane. If that does not manifest into such an intense weather pattern, then obviously prices could back off again on Sunday. But again, conversely, if it's very disruptive and we get those reports through, through Sunday night, then the reopening could be quite interesting, something to just be aware of. Otherwise, back to the calendar of main events. So other than what we've talked about, obviously Powell's the main thing. This morning is deadly quiet in terms of major scheduled events, so probably just sitting on our hands and waiting really for this afternoon. In the interim period, we do get things like personal income, core PCE price index coming out of the States at 1:30, but likely to be fairly limited ahead of the main event. And then University of Michigan sentiment, the final August reading at 3 o'clock, but that will be absolutely ignored given the timings will be at the exact time Powell will be speaking. And that is it. So final word is Piers, the head of trading, and I are going to have a chat then, a bit of a debrief after Powell has spoken. We'll jump on a podcast to wrap, wrap up the week. So don't forget to just go on to all the major podcast platforms like Apple, Spotify, just search for the Market Watch by AmplifyMe and you'll be able to find the latest podcast episode, which will be out later today. All right, guys. So as I said, if you are available, love to have you online later. So just before 3 PM when Powell speaks, I'll be live on the YouTube channel. So look forward to seeing you then. All right, take care.