Global markets are stuck in a holding pattern with S&P futures up modestly after fluctuating overnight, as European and Asian shares rise with oil while the dollar has dipped lower ahead of the biggest central bank event of the year: the Fed’s Jackson Hole symposium where Janet Yellen and Mario Draghi will speak at 10am and 3pm ET, respectively. Meanwhile, world stocks drifted toward their best week in six on Friday, as a near three-year high in emerging markets shares and a roaring rally in industrial metals bolstered the year’s global bull run.
US futures got a marginal boost by comments from Gary Cohn before the FT shortly after 5am ET, pushing back against suggestions he will leave the White House and confirming another push for tax reform.
European Stocks were mixed for much of the morning session before edging higher, with gains for miners eclipsing retailer declines in the wake of Amazon’s announcement it would cut Whole Foods prices on Monday in the Stoxx Europe 600 Index.
As discussed over the past week, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium (today’s agenda here). They talk at 10am and then 3pm (EST/NY time). As for Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. Deutsche Bank yesterday published a piece re-visiting Yellen’s July 2014 speech on “Monetary Policy and Financial Stability” as a benchmark for assessing any changes in her views on the topic. The bank suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen’s speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?
“Will financial-stability concerns prompt the Fed to hike, even when inflation is so low? This is what the market wants to know,” John Cairns, a strategist at Rand Merchant Bank in Johannesburg, wrote in a client note. “With little else to focus on, the market has morphed the symposium into a colossus. Risks are two-way: Yellen could take the hike off the table, or reaffirm it.”
In macro, the yen was heading for its worst week since July 7 as traders awaited clues on pace of monetary tightening from central bankers at Jackson Hole and as tensions ease on the Korean peninsula.
In Asia, Japan’s Topix index closed 0.3% higher with volume on the gauge about 20 percent below its 30-day intraday average. The S&P/ASX 200 Index in Sydney fluctuated before finishing little changed and South Korea’s Kospi index rose 0.1 percent. The Hang Seng Index in Hong Kong added 1 percent and the Shanghai Composite Index advanced 1.7 percent. The MSCI Asia Pacific Index rose 0.2 percent.
Curiously, 10Y JGB Yields slid back and were just above 0% even as the Bank of Japan cut back on purchases of five-to-10 year JGBs for a second time this month, this time from JPY440BN to 410BN, encouraged by a decline in the benchmark yield.
Offshore yuan trades near strongest in 11 months, while won halts 4-day gain. The pound headed for its fourth consecutive weekly decline against dollar, its longest losing streak since Jan. 2015, as concerns over Brexit negotiations and tepid economic data weighed on U.K. currency. Bund futures edge lower, small widening seen in semi-core EGBs, with a large bund block printed vs cash OATs catching some focus
In commodities, oil prices rose on expectations that U.S. production could be hit by what looks set to be one of the strongest hurricanes in more than a decade. Hurricane Harvey as it has been named, is packing winds of up to 125 miles per hour (200 km per hour), and is forecast to drive a surge in sea levels as high as 12 feet (3.7 meters) and dump up to 35 inches (97 cm) of rain over parts of Texas. .S. crude futures rose 0.7 percent to $47.75 a barrel, and global benchmark Brent advanced 0.7 percent to $52.41. They had fallen as much as 2 percent on Thursday as refiners in the path of Harvey shuttered production.
Industrial metals are headed for a dazzling week, with copper remaining near a three-year high hit on Thursday on signs of stronger demand in top consumer China while inventories in London warehouses fell. Nickel which is used in stainless steel was up more than 6 percent for the week and benchmark Chinese iron ore futures DCIOcv1 were up for an eighth straight week. Gold meanwhile was up slightly at $1,287.07 an ounce, heading for a 0.2 percent gain for the week.
As discussed over the past week, the only show in town over the next couple of days is the Yellen and Draghi show at the Jackson Hole symposium (today’s agenda here). They talk at 10am and then 3pm (EST/NY time). As for Yellen it seems the swing factor is whether the Fed is placing greater weight on very loose financial conditions and financial stability concerns over any supposed short term soft inflation numbers. Deutsche Bank yesterday published a piece re-visiting Yellen’s July 2014 speech on “Monetary Policy and Financial Stability” as a benchmark for assessing any changes in her views on the topic. The bank suggests that there is an interesting parallel between today and mid-2014 when Yellen delivered that speech. Then, as now, financial conditions were very loose. Yet despite easy financial conditions at the time, Yellen’s speech concluded that the nature and magnitude of financial stability considerations as of mid-2014 were insufficient to justify tighter monetary policy. The key question for markets is whether enough has changed since July 2014 for Yellen to reach a different conclusion and send a more hawkish signal about the future monetary policy path at Jackson Hole?
