Good morning contrarians! It is Friday, August 26.
Stocks rallied yesterday, led by tech. The Nasdaq gained 1.7% on the day whilst the S&P 500 added about 1.5%. Major U.S. indexes are still on track for the second straight losing week.
State of Play
As of 0630 it looks like investors are paring their bullish bets a bit:
Stock futures are down, with the Nasdaq off 0.5% and S&P 0.3% lower;
Cryptos are dropping a bit, with bitcoin down 1% to trade around $21,400;
Commodities are seeing bids however, with WTI crude oil up more than 1% to trade close to $94/barrel and copper up almost 2%. Gold and silver are unchanged;
Bonds are selling off at the long end of the curve, with the yield on the 10-year up 6 basis points to 3.08% whilst the 2-year is up 1bps to 3.39%.
Jackson Hole
Jerome Powell’s much anticipated speech is at 10am. At the time of this writing it does not look like any details of the speech have leaked out. There was this assessment by CNBC, that Powell “is not likely to tell investors what they want to hear,” but that may just be conjecture — if not a contrarian indicator. The Wall Street Journal for its part points out that Powell has traditionally use the Jackson Hole speech “to provide a broader historical context for the decisions confronting policy makers over the coming months.”
The agenda for Jackson Hole is otherwise not particularly impressive. Mostly a bunch of academics. The only Fed speaker named in the agenda is Kansas City Fed President Esther George, who presided over last night’s dinner and apparently didn’t say anything newsworthy.
PCE Deflator
Jackson Hole isn’t the only game in town. The Fed’s preferred inflation gauge prints at 0830. This will not factor in to Powell’s speech. Economists surveyed expect the PCE price index to come in at 0.1% month-over-month, down a lot from the 1% seen at the previous reading. The core figure, which excludes food and energy, is expected to print at 0.3% compared to 0.6% in June.
Year-over-year the expectations are for 6.4% (6.8% previous) and 4.7% (4.8%). But YoY comps are less important now as markets are more interested in how things are developing in the short term. The news headlines will likely continue to focus on the YoY figure however.
The Bottom Line©
The two most recent Fed interest rate decisions leaked out ahead of the announcements. If there was a leak of this speech, it wasn’t caught by the news media. That leaves us guessing on what Powell might say. Seeing how this is literally guessing at this point, there is no need to add any additional commentary. Flip a coin if you like.
Fed officials have stressed the need for data dependency, which Wall Street has taken as a signal for ‘buy stocks.’ That may have been foolish, but the data definitely has an impact on Fed policy (so does the stock market, though of course the Fed will never admit that). And the fact remains that unless inflation continues to improve, the Fed will simply not be able to shift from its hawkish stance. It’s really that simple.
From that perspective it may be a bit naive to expect Powell to throw the markets much of anything. But then that may have been unrealistic to begin with. It’s still possible that Powell’s comments from the last FOMC meeting were interpreted far too optimistically. If that was the case, then the market may indeed be setting itself up for disappointment — and not just for today’s speech.
Jay Powell Holds The Keys