Powell Speaks at Jackson Hole

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, Aug. 23. The Bottom Line segment of today’s podcast starts at (5:43) for listeners who want to skip ahead.

State of Play

Stocks dropped yesterday after Manufacturing PMIs came in below forecasts. As we look at our board of indicators for signs of direction at 0640, some risk-on appears to be developing:

• Stock index futures are pointing to a higher open, led by tech. The Nasdaq is up 0.9% with S&P 500 up 0.6%;

• Commodities are gaining ground with WTI crude oil up 1% to trade close to $74/barrel. Copper is up 0.6%;

• Bonds aren’t doing anything ahead of Jerome Powell’s speech at Jackson Hole, Wyo. The 2-year yield is an even 4% with the 10-year yielding 3.85%.

• Cryptos also appear to be sitting this one out, with Bitcoin unchanged trading around $61,000.

‘Jackson H le’ graffiti by author ©️2023

Today’s Known Events

Jerome Powell returns to the fore today, speaking at the Jackson Hole Symposium at 1000. Powell has used Jackson Hole as the venue to make major policy announcements before, most notably in 2022 when he gave his infamous “restrictive policy stance for some time” speech.

This time around, no such fanfare is expected. This is partly because the Fed has — unlike in 2022 — clearly signaled its next move will be to cut rates, and that at its next meeting on Sept. 18. The only questions are a) how much they will cut and b) if it will be ‘one and done’ or the start of broader loosening of monetary policy.

It’s probable that even the data-dependent Fed doesn’t know the answer to these questions. Powell will likely say as much today, which of course won’t stop the market from trying to interpret his comments and then (over)reacting to its interpretation.

For what it’s worth, Fed fund futures are pricing in a 75% chance of a 25bps cut at the FOMC meeting next month. There is a 25% chance of a 50bps cut and literally 0% chance the Fed will stand pat — according to Fed fund futures.