Esther George, John Williams and Jerome Powell, at Jackson Trouble, Wyoming, August 24, 2018.
David A. Grogan | CNBC
If the markets get their way, Fed Chairman Jerome Powell will use the Fed’s Jackson Brig symposium to clarify whether the Fed is at the beginning of a serious rate cutting cycle — or just intending to cut a few times, as insurance against a practical downturn.
Powell speaks next Friday morning to kick off the Fed’s annual Jackson Hole symposium in Wyoming, and that outcome is the main focus of markets in the week ahead. The Fed also releases the minutes of its July meeting Wednesday afternoon, and it is count oned to detail discussions around its decision to cut interest rates last month for the first time in more than a decade.
In a briefing engage in that meeting, Powell discussed the quarter point rate cut as a “midcycle adjustment,” implying it was just considering a few condenses. That comment shook markets, and interest rates have plunged, along with global bond overs.
“What the market wants is clearly that he moves away from the ‘midcycle adjustment’ commentary and transition toward an reposing cycle,” said Quincy Krosby, chief market strategist at Prudential Financial.
Markets also will be regard any developments that reveal how trade talks between the U.S. and China are faring. President Donald Trump soothed some nerves in the over week when he delayed some of his latest tariffs on Chinese goods. Trump also said Thursday that exchanges are continuing, and that he expects to talk to President Xi Jinping soon, though he gave no details.
Powell speaks at a heretofore when markets have been doubting the Fed’s ability to head off a recession. Since he spoke on July 31, the assets weigh up market has been turbulent, with the S&P 500 losing nearly 3%, but the move in interest rates has been enormous. The 10-year yield was at 2.07% that day, and touched a low of 1.475% on Thursday before returning to 1.54% by late Friday.
The Resources’s 30-year bond made a historic move in the past week, when its yield fell to a record low of 1.915%, in front rising back above 2% Friday. Also, the most widely watched part of the yield curve inverted, when the 2-year relent made the unusual move of temporarily rising above the 10-year yield. That would be taken as a sign of til recession if it inverts again and stays that way for some time.
Stocks were lower for the week, but reversed sharper wastings by the end of the week. The S&P 500 was up 1.4% Friday at 2,888, but was down 1% for the week. The Dow rose 1.2% to 25,886 Friday, but squandered 1.5% for the week.
Dramatic moves in the world’s sovereign yields came as global central banks cut interest values, and there was talk from a European Central Bank official that the ECB could use a big stimulus program. That diminishes extra pressure on the Fed, which has emphasized that it could lower rates because of the weak global economy, the results of trade wars and sluggish inflation. Rates all over the globe moved lower, and the benchmark German 10-year bund set a new low of dissenting 0.73 Friday morning.
“They don’t want to signal they’re worried about the economy because the economy is doing okay, ” said Pramod Alturi, immutable income portfolio manager at Capital Group. “I think they can do it. It’s going to be a tough communications challenge. The worry is when they try to tow the procession, they end up being more hawkish than the market is looking for.”
Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch, denoted she is looking for Powell to comment on the yield curve inversion and the market turbulence. “Is he more concerned about the prospect?” she said. “Has he become more concerned since the meeting, given the slowdown in global data, the increase of risks in the exchange war and the recent significant moves in the market” she said.
The fed funds futures market is pricing in two to three rate cuts for the remainder of the year. Since the Fed meeting, the market has become more concerned about the economy, with weaker global facts from Europe and China, as well as a new round of tariffs on Chinese goods, announced by President Donald Trump.
“Is Powell present to stick to the midcycle adjustment? It’s only been three weeks, but you throw in the sharp inversion of the yield curve and the more consumer tariffs … is he going to let the market whipsaw him? We’ve seen a big inversion and a sharp drop in rates since that caucus,” said Peter Boockvar, chief market strategist at Bleakley Advisory Group.
Strategists said the Fed tries to keep away from making policy changes at the Jackson Hole meeting, but it was done during the financial crisis.
“Is it going to be an academic speaking? Or is he going to pull a Ben Bernanke and use Jackson Hole as his FOMC venue. It was really [former Fed Chairman] Bernanke who most oddly [used the meeting to discuss policy] when he laid out the case for QE twice,” Boockvar said.
Powell could also drink to defend the Fed’s independence, and reiterate that he will stay in his position until his term expires, particularly after President Donald Trump denounced Fed policy and called him “clueless” this week.
Besides the Fed, there are some economic reports of interest in the week at the. Existing home sales are announced Wednesday and PMI manufacturing and services data is released Thursday.
Krosby said she is watching developments with Huawei, since the short-lived licenses for U.S. firms doing business with the black-listed Chinese company end on August 19.
“In terms of headlines this could be a call mover because of Huawei’s importance to Beijing. If there is an extension from the administration it could suggest an improvement in the D.C./Beijing colloquy, no doubt a positive headline,” she said, in an email. “We could find out what happens from a presidential tweet or from the Area of Commerce, which has jurisdiction over the issue.”
Week ahead Calendar
Monday
Deadline for temporary licenses for U.S. set ons doing business with Huawei
Tuesday
8:30 a.m. Philadelphia Fed nonmanufacturing
6:00 p.m. Fed Vice Chair Randal Quarles
Wednesday
10:00 a.m. Prevailing home sales
2:00 p.m. FOMC minutes
Thursday
8:30 a.m. Initial claims
9:45 a.m. Manufacturing PMI
9:45 a.m. Services PMI
Friday
10:00 a.m. Fed Chairman Jerome Powell at Jackson Mess
all times Eastern time