jackson hole meeting

Jerome Powell's in the spotlight, but equally important for the immediate Fed outlook will be the upcoming job report next week and the CPI print that follows. He may strive to endorse the market's recently rediscovered hawkishness, but also needs confirmation in the data. The ECB minutes pointed to more tightening ahead, with a hint at the balance sheet   Jerome Powell's speech at Jackson Hole today is the main event Powell to speak against an already hawkish-leaning backdrop Many will have marked Fed Chair Jerome Powell’s speech today as the highlight of the week. Whether he will prove as market-moving as some expect is still to be seen. A likely scenario is that he will endorse the retightening of financial market conditions and thus also the trend towards higher market rates of late, given that the Fed still is a stretch away from getting inflation under control. Emphasis on the terminal rate may be an attempt to shift the focus away from a slowing hiking pace Recent Fed speakers have indeed provided a more hawkish backdrop, confirming the market leaning toward such an outcome. The Fed’s Esther George assessed that the Fed still needed to raise rates further to slow demand and bring inflation down, highlighting the importance of clear communication of the destination the Fed is headed – and that could even be above 4%. She pushed back against the notion of cuts following on the heels of the tightening cycle, where the market is currently seeing the peak in the Fed funds rate at close to 3.8% in the first quarter of next year, before pricing in first rate cuts again. Putting the emphasis on the terminal rate may be seen as an attempt to shift the focus away from the Fed slowing its hiking pace soon. Whether that happens already in September will be determined by the data – 300k, as is currently the consensus for next week’s payrolls increase, would leave a 75bp hike still on the table. We suspect that the next CPI release and whether it can confirm the notion of peak inflation will be more relevant. Here our economists see the risk of the core inflation reading still heading higher. The Fed has European markets to thank for a tightening of financial conditions Source: Refinitiv, ING ECB still has more tightening to do – could the balance sheet be next? The main takeaway from the European Central Bank minutes was the signalling of more hikes to come as the outlook for inflation worsened. The larger increase of 50bp in July should be understood as a frontloading of the normalisation process, but not as a change of the end-point of the cycle. This end-point will only crystallise once interest rates get closer to it, and – as also our economists have noted – it probably remains a moving target.       While data continues to point lower, even if not as bad as feared as was the case with yesterday’s German Ifo, the ECB appears reluctant to use the word recession. The ECB minutes suggested the central bank continues to hold on to a more optimistic view of the economy, at least at the last July meeting. Abandoning the rates guidance has provided much-needed flexibility, but balance sheet guidance remains The minutes also foreshadowed a discussion that could add upward pressure to longer-dated rates. Abandoning the rates forward guidance has provided much-needed flexibility in setting monetary policy. But there still remains guidance in place for the balance sheet, or more precisely the reinvestment of the QE portfolios. For now, the ECB intends to reinvest maturities of the Asset Purchase Programme portfolio “for an extended period of time past the date when it started raising the key interest rates”. Pandemic Emergency Purchase Programme maturities will be reinvested at least until the end of 2024. No direct conclusions were drawn just yet in the minutes, but already earlier, the ECB’s Isabel Schnabel and Bundesbank’s Joachim Nagel hinted that the balance sheet would have to be considered at some point. Next week the ECB will have to contemplate another CPI print, and given the underlying rise in energy (gas) prices the trend continues to point higher – our economists do not exclude a peak in the double digits. Adjusting the reinvestment guidance may offer the ECB another lever on monetary policy, though we would caution that at a time where flexible reinvestments are used to contain sovereign spreads, talking about reducing reinvestments could prove counterproductive. Today's events and market view Powell's Jackson Hole speech is the day's highlight. Although rates have eased a little lower with the 10Y UST almost touching the 3% mark again, the market is leaning hawkish into this event. Other Fed speakers have already sounded hawkish tones, such as Esther George just yesterday, setting the backdrop for Powell. In these turbulent markets, investors will also have to contend with a resurgence in supply as September draws near. We're expecting €25bn of European government bond supply next week, to which the EU will add a €4bn tap. Other releases of note today are the personal income and spending data. Consumer spending should be OK with lower gasoline prices boosting household spending power, supporting consumption elsewhere. The PCE deflator, the Fed's preferred inflation measure, will reflect the earlier flat CPI release. The University of Michigan Consumer sentiment release is a final reading but might be revised a tad higher given a further slide in gasoline prices.  Read this article on THINK TagsRates Daily Jerome Powell Jackson Hole Federal Reserve Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Today's speech by Jerome Powell in Jackson Hole has been regarded as a pivotal event for markets. However, Powell may refrain from deviating too much from market's expectations, and a reiteration of data dependency could put off part of the market reaction until next week's payrolls data. Still, a consolidation of the hawkish pricing can help the dollar Markets will be scanning Powell's speech today from a number of different perspectives   Monday 29 August is a national holiday in the UK, we'll resume publication of the FX Daily on Tuesday 30 August. USD: Powell may not want to shock the markets (in either direction) Fed Chair Jerome Powell will deliver his much-awaited keynote speech at the Jackson Hole Symposium at 1500 GMT today. Yesterday, comments by other Fed officials largely fell on the hawkish side of the spectrum. The arch-hawk James Bullard stressed once again the need for front-loading of rate hikes, suggesting rates should be raised to the 3.75-4.0% mark by the end of this year. The host of the Symposium, Kansas City Fed President Esther George, also said high inflation warrants more hikes, but highlighted the importance of incoming labour data (next week) to determine the size of September’s hike. Markets will be scanning Powell’s speech today from a number of different perspectives: inflation, growth outlook, front-loading, and any hint of easing in 2023. All these factors can play a different role in driving the reaction in the FX market, although we see a quite elevated risk that Powell may end up broadly matching the generally hawkish market expectations and avert any significant market shock. On the inflation side, the speech will take place shortly before the release of PCE inflation numbers for July, which are expected to have eased slightly but remain well above 6%. There’s simply not enough evidence or interest by the Fed to sound any less concerned on the inflation picture at this point, and a firm reiteration that additional forceful tightening to curb price pressures could remain at the core of Powell’s message today. Our suspicion is also that today’s speech will keep the notion of data dependency well intact, and potentially put off a big chunk of what could have been today’s market reaction until next week when US jobs figures are released. Looking at the implications for the dollar, we think that markets may find enough reason to push their peak rate pricing a bit closer to the 4.0% mark today and stir away from pricing back more than the current 1-2 rate cuts in 2023, which should ultimately offer some support to the dollar into next weeks’ payrolls release. We think DXY may touch 110.00 in the coming days, if not today.   Despite not being our baseline case, the downside risks to the dollar are non-negligible today. A more alarming tone on recession and any hints that the Fed will be more considerate when it comes to tightening to avert a major dampening impact on the economy would likely trigger an asymmetric negative reaction on the dollar, considering a rather stretched long positioning and short-term overvaluation, especially against European currencies.  Francesco Pesole EUR: Fair value converging to spot? Today’s price action in EUR/USD should be entirely driven by the dollar reaction to Powell’s speech, unless some further developments on the gas crisis story come to the fore. As we expect a moderately dollar-positive impact from Powell, we think EUR/USD may re-test the 0.9900 support. As discussed in recent research notes, the ongoing short-term undervaluation in EUR/USD is quite significant (around 5%), but a shrinking of the risk premium seems unlikely given the major threats to the eurozone’s economic outlook and may instead be triggered by a re-widening of the Fed-ECB rate expectations differential – i.e. with the fair value converging to spot and not the other way around. The minutes of the ECB’s July meeting released yesterday didn’t bring anything new to the table. Interestingly, concerns about a weak euro have become a very central theme within the Governing Council: expect to hear more on this topic from an intensifying ECB speakers activity next week, even though the ECB’s ability to offer a solid floor to the euro has proven blatantly limited given the persistence of high energy prices. Francesco Pesole GBP: Still driven by external factors The pound will lack any domestic drivers today, and Cable should move mostly in line with the dollar reaction to Jackson Hole. A break below the 1.1730 lows from earlier this week may well be on the cards on the back of USD strengthening, as 1.1500 (the 2020 flash crash bottom) is no longer looking like a remote possibility. It will be interesting to see EUR/GBP reaction to today’s speech by Powell. We could see a small recovery in the pair in a hawkish scenario where risk sentiment is hit, considering GBP is normally more sensitive to global risk moves, but the low appetite for EUR longs should keep a cap on the pair for now.    Francesco Pesole CEE: Zloty testing stronger levels Given the completely empty calendar in the region today, the market will wait for the next move at the global level, i.e. the outcome from Jackson Hole. In the meantime, the CEE floaters decided to test stronger levels for the first time in a while, but in the case of the Hungarian forint it was short-lived and we think that even the Polish zloty does not deserve yesterday's gains at this point. The forint, which has been heavily driven by gas prices, has been pulled back to weaker levels and this is negative news for the zloty as well. However, zloty was supported yesterday by a rise in market expectations for a rate hike and could thus benefit from a rising interest rate differential for the first time in a while. In our view, however, this is not enough and if bets on rate hikes do not increase further, the zloty will revert back to 4.770 EUR/PLN in our view. However, markets are already expecting more than a 50bp rate hike at the September National Bank of Poland meeting at this point, which we already think is a very aggressive expectation given the NBP's dovish rhetoric and worse-than-expected economic data. Therefore, we do not expect the interest rate differential to be supportive of the zloty. Thus, CEE floating currencies remain mainly driven by global influence. Frantisek Taborsky Read this article on THINK TagsJackson Hole FX Daily FX Dollar CEE Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

The Japanese yen is in negative territory today. USD/JPY is trading at 136.90 in the European session, up 0.34%. It has been a relatively quiet week for the yen, which is trading exactly where it started the week, around the 137 line. The month of August has not been kind to the yen, with USD/JPY soaring 2.75%. The US dollar is again in favor as the markets have tapered down their excitement that the Fed plans a dovish pivot. Does the Fed plan to let up or remain aggressive in its fight against inflation? We will certainly be smarter after Jerome Powell’s speech at Jackson Hole later today. A hawkish message from Powell should boost the US dollar unless investors zero in on any dovish remarks or projections, which could reignite speculation that the Fed will ease up on rate hikes. Tokyo Core CPI rises The Tokyo Core CPI index rose 2.6% in August, above the forecast of 2.5% and higher than the 2.3% gain in July. This marked the highest gain since October 2014. Policy makers in other major economies can only dream about inflation below 3%, but for Japan, rising inflation is a new phenomenon after decades of deflation. Inflation has exceeded the Bank of Japan’s target of 2% for four successive months and inflation is finally on the Bank’s agenda. Still, it is very unlikely that the BoJ will do anything more than tweak monetary policy, as its number one goal is to stimulate Japan’s fragile economy. The rise in inflation and the BoJ’s rigorous control of its yield curve has caused a steep deprecation of the yen, and an exchange rate of 140 may not be far off. There has been speculation in recent months that the Ministry of Finance could intervene to support the yen, but this has not happened until now and there is no indication that the 140 level is a magical ‘line in the sand’ that would trigger intervention.  For now, the main driver of USD/JPY remains the US/Japan rate differential, leaving the yen at the mercy of the movement of US Treasury yields. USD/JPY Technical USD/JPY is testing resistance at 137.03. Above, there is resistance at 137.03 1.3615 and 1.3504 are providing support This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. USD/JPY hits 137, Powell speech eyed - MarketPulseMarketPulse

The day we’ve all been waiting for has finally arrived as Jerome Powell prepares for his keynote speech at Jackson Hole. I have no doubt Powell will have chosen his words very carefully today, all too aware of the consequences of even the smallest deviation in his intended message. It’s a little ridiculous that markets put so much weight on such things but that is the situation we are in and I expect the Fed Chair will be very clear in the message he wants to send. The difficulty for Powell stems from the fact that there’s the message investors desperately want to hear and the one they’ve repeatedly ignored since the July Fed meeting. The “dovish pivot” played nicely into the hands of the perma-bulls that have waited impatiently for the stock market to recover this year. Despite policymakers’ best efforts, attempts to correct this narrative have been brushed aside and the view today is that Powell may try to address this in a more forceful and convincing way. If he fails or gives the slightest impression that there is any substance to the dovish pivot narrative, we could see yields slip and stock markets end the week on a high. That could come intentionally, or otherwise, but investors will be clinging to his every word for even the slightest hint. Especially in light of the recent inflation reading. No pressure. Plenty of US economic data ahead of Powell’s speech While I’m sure that would be enough excitement for one day, there’s plenty of economic data due from the US later that will have a big role to play as well. Ahead of the speech, we’ll get income, spending and core PCE price index data, the latter of which is the Fed’s preferred inflation measure. The timing couldn’t be better. The UoM consumer sentiment survey is also released around the time his speech starts which will also be interesting, given that it’s languishing near its lowest level in decades even as actual spending remains strong. Sterling slips after eye-watering energy price cap rise and forecasts The pound fell this morning after it was confirmed by Ofgem that the energy price cap will rise by 80% in October, taking the average annual household energy bill to £3,549. It’s the moment many have feared for months and to make matters worse, the eye-watering hike was accompanied by a warning that prices are continuing to rise ahead of the next revision in January, with Cornwall Insight suggesting the cap could hit £6,616.37 next year. While looking that far ahead leaves enormous room for error if this year is anything to go by, that is devastating for so many and will require immense government support. It will also make the job of the Bank of England horrifically hard, with its previous projection of inflation this year peaking at 13.3% now looking unrealistically optimistic. Five quarters of contraction may also start to look like the optimistic scenario at this rate. Japanese inflation rises but BoJ to remain calm Contrast that with inflation in Japan, where the Tokyo CPI rose to 2.9% y/y in August and only 1.4% ex-fresh food and energy. It’s no surprise the central bank is pushing back against the need to tighten monetary policy at this point in time. Of course, it’s easy to say that when the pressure on the currency and bond yields have eased to the extent they have over the last six weeks. That could well change if Powell strikes a hawkish tone today and triggers another jump in yields and the dollar. Crypto hoping for dovish Powell Everything I write about at the minute seems to require the need to reference back to Jackson Hole and Fed Chair Powell and bitcoin is no different. Last Friday’s sell-off has left bitcoin vulnerable ahead of today’s speech and crypto bulls will be hoping for anything dovish that could help it get back on its feet. The opposite could see $20,000 come under pressure. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. All eyes on Jackson Hole - MarketPulseMarketPulse

The latest weekly gold survey shows Wall Street analysts are bearish for the current week, while sentiment among retail investors is roughly balanced. Analysts believe that the rise in U.S. bond yields, which reached a new 15-year high on Thursday, remains a significant restraining factor for gold.   The slowdown in China's economy also deters investors. According to Edward Moya, Senior Market analyst at OANDA, the yield on Treasury bonds is at a level that supports the Federal Reserve's monetary policy, and this is a difficult environment for gold. However, his opinion on gold prices for the current week is neutral, as he believes that bond yields are likely close to their peak, and gold sales dynamics are probably slowing down. For selling pressure on gold to persist, bond yields would need to continue rising. But most analysts believe a decline in gold prices is more likely.   Presumably, Federal Reserve Chairman Jerome Powell, speaking at the annual central bank meeting in Jackson Hole on Friday, will maintain his hawkish stance. And rates will remain high going forward. Last week, 16 Wall Street analysts participated in a gold survey. Among the participants, ten analysts, or 63%, were bearish for the current week. Two analysts, or 13%, were optimistic, while four analysts, or 25%, took a neutral stance. In online polls, 941 votes were cast. Of those, 415 respondents, or 44%, expect price increases. Another 386, or 41%, favor price decreases, while 140 voters, or 15%, voted for a neutral position.       Despite this, Adrian Day, president of Adrian Day Asset Management, is bullish on prices for the next few months. He believes that investors should not ignore short-term price dynamics, as it is rare to see such a drop without any continuation, adding that this week may see a decrease in prices, but this will not affect long-term growth. James Stanley, market strategist at Stone X, said even if Powell takes a neutral stance in Jackson Hole, gold will find it hard to change its bearish technical outlook. Likely, the technical support level will remain at $1875.