Financial market research and analysis

Asian markets and European futures were mixed after Wall Street ended the session overnight in the red, as a fresh round of trade tariffs in addition to Trump’s legal issues kept risk appetite in check.

Further trade tariffs being levied by the US, and in retaliation by China, highlighted the lack of progress being made by the two nations in the trade talks which were happening as the tariffs were being applied. The bar had been set low for the trade negotiations and it appears that even those low expectations have been missed. Boeing and Caterpillar, which have been bellwethers for sentiment during the trade spat due to their significant international exposure, were the biggest drag on the Dow, which closed 0.3% lower.

 

What to watch for from Fed Chair Powell’s speech:

The key highlight today will be Fed Chair Jerome Powell’s speech at the Jackson Hole conference at 14:00 GMT this afternoon.

Following the FOMC minutes, which suggested the Fed were looking to tighten rates again soon, investors will closely scrutinise where Fed Chair Powell stands on the pace of interest rate hikes. Going into the speech the markets are widely expecting two more rate hikes this year. Whilst the first hike is almost completely priced in, the second one is only 65% priced in. This means that any hawkish remarks from Fed Powell could lift this probability and therefore boost the dollar back towards 96.20.

Powell’s speech could also contain fresh hints as to how the Fed view the escalating trade tensions. The Fed expressed some concerns over trade tensions stemming economic growth in the FOMC minutes released on Wednesday. Further tariffs have since been applied and another round of talks have failed. The minutes also saw the Fed express concerns over housing and emerging markets. Should Powell expand on these concerns and suggest that they could hit the US economic outlook, potentially altering the forward guidance; then the dollar’s rally on Thursday could be quickly reversed bringing USDJPY back towards 110.00

 

A note on Trump

The speech by Fed Chair Powell comes following an open criticism from President Trump earlier in the week. Trump bemoaning the Fed hiking rates is highly unlikely to prevent the Fed from increasing interest rates; if anything, it could put slightly more pressure on the Fed to hike in December to avoid suggestions of caving into Trump. Fed Chair Powell is unlikely to start bickering in public with Trump, so we expect him to ignore criticism from his boss.


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