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#1 22-08-2019 17:41:47

Admin & Trader
From: Paris - France
Registered: 21-12-2009
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Fed: will Powell reassure traders or send them into a panic today?

Fed: will Powell reassure traders or send them into a panic with his Jackson Hole speech this week?

If the markets get what they want, Fed pres Powell will use today's Jackson Hole meeting to clarify whether the Fed is at the beginning of a rate reduction cycle or whether it simply intends to implement several reductions to combat a possible recession.

Powell will speak this morning to kick off the Fed's annual Jackson Hole forum in Wyoming, and this event will be at the forefront of market concerns in the coming weeks. The Fed has also just published the minutes of its July meeting, which has details regarding its decision to reduce interest rates in July for the first time in over ten years.

After the meeting, Powell referred to the 0.25% reduction in interest rates as a "mid-cycle adjustment", suggesting that he was only considering a few cuts. This comment shook markets and interest rates fell.

"What the market are craving is for it to move away from comments on mid-cycle adjustment and transitions to a more flexible cycle," said Mr. Krosby of Prudential Financial.

The markets will also monitor any developments that reveal the state of trade negotiations between the US and China. President Trump eased tensions over the past week when he delayed some of his latest taxes on Chinese products. Mr. Trump also said last week that discussions are continuing and that he intends to meet with President Jinping soon.

Mr. Powell will speak at a time when markets are doubting the Fed's ability to prevent an economic slowdown. Since his speech at the end of last month, the stock market has been turbulent, with the S&P index losing over 2.5%, but interest rates have moved massively. The 10-year yield was 2.07% that day and bottomed out at 1.475% last week before falling back to 1.54% at the week close.

30-year T-bonds made a historic move last week when their yields fell to a record low of 1.915% before rising above 2% on Friday. In addition, the most monitored part of the yield curve was reversed when the 2-year yield made the unusual decision to temporarily rise above the 10-year yield. This would be considered a sign of an impending recession if it reversed again and remained so for some time.

Stocks fell last week, but offset some of the losses at the end of the week. The S&P index was up 1.4% Friday to 2,888, but down 1% for the week. The Dow rose 1.2% to 25.886 on Friday but lost 1.5% for the week.

Global sovereign yields moved dramatically when global central banks lowered interest rates, and an ECB official said that they might need to implement a major stimulus package. This puts additional pressure on the Fed, which has pointed out that it could lower its rates due to the weakness of the world's economy, the impact of trade wars and low inflation. Rates fell worldwide, and the German 10-year benchmark bund reached a new low of -0.73 on Friday morning.

"They don't want to report that they are worried about the economy because the economy is doing well," says Pramad Atluri of Capital Group. "I think they can do it. It will be a difficult communication challenge. The concern is that when they try to rise to the occasion, they end up being more bellicose than the market wants them to be."

Michella Meyer, head of the U.S. economic analysis at Merrill Lynch, said she would like Powell to comment on market turbulence. "Is he more concerned about prospects for the future?" she says. "Has he become more concerned since the meeting, given the slowdown in global data, the increased risks in the trade war and recent significant market developments?"

Where will the EUR/USD pair head?

Regarding the currency markets, it should be noted that a speech by Mr. Powell confirming the possibilities of further Fed rate cuts should weigh down on the greenback and support the EUR/USD in the short term. On the other hand, if Powell is more reserved than he has previously been about rate cuts, the EUR/USD will likely head south.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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