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Nothing More Than ‘Gradual’ Rate Rises Keeps Bull Market Alive

A bank holiday in London is expected to keep trading in Europe pretty thin on Monday. Traders have had the weekend to digest all the central banker commentary from Jackson Hole. The equity market reaction to Fed Chair Powell’s speech was one of either appreciation of disinterest. The S&P500 and Nasdaq both reached all-time highs on Friday while the Dow gained over 100 points. Shares in Asia are tracking the gains on Wall Street with futures indicating a positive start in Europe.

Powell noted the economy was strong, as in previous remarks, but held back from stepping up the outlook to one that would indicate anything more than the existing ‘gradual’ rise in interest rates. The dollar has looked over-extended over the last few months with a big build up in long options and futures positions, and the last couple of weeks has seen it give up some gains. Some traders had clearly positioned for Powell to use Jackson Hole as a signpost for tighter policy, but it never came. The weakness in the dollar helped gold see its first positive weekly close in 8 weeks, with a move back above $1200 per oz.

The political turmoil engulfing the US President and his advisers seems to have done little to dampen market spirits. The effect of Trump’s political issues could become more marked if he turns to other issues like the trade war as a means of distraction. The low-level trade war talks ended with a whimper last week, but expectations had seemingly been set low enough going into them, so the disappointment was limited.

Looking forward, German IFO data is released on Monday. Expectations for business conditions are expected to have ticked up slightly in August after slumping in prior months. For now, at least Europe appears to be out the of the firing line of US sanctions, which should offer relief to German business leaders.

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