Erik Schafhauser Zürich Erik Schafhauser Zürich Erik Schafhauser Zürich

Morning Brew August 25 2023

Morning Brew 1 minute to read
Erik
Erik Schafhauser

Senior Relationship Manager

Summary:  Powell at 16:00 CET, Lagarde at 21:00 - What will it be?


Good Morning,

We are heading into the Jackson Hole conference on nervous footing.

Equities fell yesterday, yields rose after the selloff and the USD gained in value. Main causes were “good” unemployment numbers and hawkish comments by Patrick Harker who said he sees rates higher for longer.

The Dow closed up 1.1% at 34.099, the S&P 500 lost 1.35% to 4376 and the Nasdaq -1.9% to 13463.Tech was a large loser and the expected boost from Nvidia fell flat as the company gave back virtually all of the gains and closed up 0.1%.

Yields were under pressure yesterday but rebounded quite strongly, the 10 year came from 4.35 early in the week to 4.17 yesterday and now 4.24, the curve behaved similarly across the durations.

The USD Index rose almost a full point to 104.25 from testing the 200d moving average at 103.40 yesterday. EURUSD fell to below 1.08 to trade at 1.0780 – below the 200 day line.

USDJPY rose to 146 again and GBPUSD fell to 1.2570. Move of the day came from the Turkish Central Bank which was expected to hike to 20% from 17.5% but actually hiked three times the expected to 25%. The Lira gained from 27.20 Lira per USD to 26.

Gold and Silver give up some ground on the strong USD and fall to 1913 and 24.05. Holdings in the GLD Gold Trust – the largest gold ETF fell to the lowest since January 2020.

Driving the market today will Powells speech at Jackson Hole starting at 16:00 CET , also bear in mind that Christine Lagarde will be speaking 5 hours later at 21:00 CET. The ECB likes to announce important adaptations outside the normal rate decisions so there is a chance she will take markets by surprise. While that is unlikely, any significant remark would hit a very thin market.

Here again the three scenarios our head of Strats sees for Powells remarks at Jackson Hole below on the risk of repeating. I am reading several comments to the effect that the US Economy is fairly strong, Inflation is falling and unemployment low, Powell may try to avoid rocking the boat – making surprises more significant.

Last year, the S&P lost 3.4% on Powells remarks and while I would not necessarily expect such a move, take it into consideration in your risk management.

Until Powells remarks, there is little of great significance. German GDP at 8:00 and the IFO index could move the Dax and the EUR on a surprise. at 16:00 the Final University of Michigan needs to be a massive deviation fromt he expected 71.2 to be noticed. 

 

John Hardy wrote up Jackson Hole Scenarios:

  1. The ”boring” scenario would be a discussion of the above without any solid takeaways or hints on either longer term implications or what the Fed is set to deliver at the September FOMC meeting. Market outcomes: the US dollar and other currencies will revert to their usual correlations with risk sentiment/China and yield direction.
  2. Lowering interest on bank reserves to zero would help stave off a rising rate spiral by forcing banks to pay less on deposits, thus both lowering bank earnings and effectively taxing depositors with “real losses” via an inflation tax as banks can’t offer attractive yields on deposits. This would be likely very bad for banks and possibly economic growth, but could also mean lower long yields – so most bullish for the yen?
  3. The Fed could take its longer run Fed policy rate projections higher, The hawkish surprise on this front would be language hinting that the September FOMC meeting will deliver a bump in the longer run rate projections. Market outcomes: A rise in the longer run rate projectionswould be the scenario most likely to deliver USD strength and risk-off.

 

Friday August 25

Data: Japan CPI; PPI, DE GDP & IFO, University of Michigan

Earnings: China Merchants Bank China Petroleum & Chemical Zijin Mining Group

Trade safely.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.