Financial market research and analysis

Asian markets took a leaf out of the Dow’s book and were on the rise ahead of a key speech by Federal Reserve Chair Jerome Powell. The Dow closed 0.2% higher overnight in a volatile session, whilst the S&P finished on the flat-line and the Nasdaq dipped lower. European and US futures were pointing to a stronger start after the opening bell.

The markets have been waiting patiently all week for Fed Chair Powell’s speech, which he will deliver today at Jackson Hole, the annual central bankers gathering in Wyoming. To say that the stakes are high for the meeting is an understatement. Powell will take to the stage less than a month after the Fed’s first interest rate cut in a decade and amid market expectations of another cut next month.  His speech comes amid heavy interference from Trump. The President's "Powell bashing" on Twitter is an almost daily occurrence now. He is looking for the Fed to drop interest rates by 1%.

Need To Hike With a Strong US Economy?

The market is pricing in a 93.5% probability of a rate cut in September, this is down marginally from the 100% expectation at the start of the week. However, the Fed had been insisting that the July cut was a mid-cycle adjustment rather than the start of an easing cycle.  US economic data has been mostly strong- The labour market is tight, retail sales increased by more than expected in the latest release, inflation is holding in there around the Fed’s 2% target and US company earnings are looking good. A cause for concern will be yesterday’s pmi data- some of the more forward looking data we have. It showed that manufacturing growth slowed to a 10-year low as manufacturers continued to feel the impact of slowing global economic conditions. However, manufacturing only makes up around 12.5% of the US economy. Therefore, manufacturing alone is not enough to tip the US into recession.

Dollar To Rise -Stocks To Drop?

Traders will be looking for the discrepancy between what the market expects and what the Fed says is their plan on rates. We think that given the disagreement even within the FOMC, we're setting up for disappointment. Powell probably is not in a position where he can give the markets what they want. Instead he could try to dissuade them that the Fed has embarked on a full on rate reduction cycle. This could see the dollar move higher, gold dip back to $1480, US stocks take a hit.